Selling a Business: The Exit/Transition Process
If a business owner/entrepreneur wants to successfully exit or transition their business--that means to actually enhance its value or sell the business for maximum value -- it is essential that he or she understand that this is a process and not an event! The bullet-points below will serve as a brief, but broader understanding of both the elements in that process and the realities of the market place.
What should a business owner do in order to properly plan a profitable exit? Here are a number of important considerations in that process:
- Change is the only constant we truly have in life. Therefore, strategic planning is required in order to exit a business under the best terms and at the right price. We can choose to acknowledge that change is inevitable and have a plan in place to make it work to our benefit or deny or ignore it and let it take its own course, which will probably not be in our best interest. It¡¦s never too early to plan an exit strategy, but it is often too late!
- All businesses will inevitably -- some day, sooner or later -- transition. They will either close or pass to heirs or be sold. Most business owners understand that selling their business is typically the most profitable route and it is often their most valuable asset.
- Recognize that the principal reason buyers purchase is for a Return On Investment (ROI). All buyers ultimately are seeking to profit from their purchase by getting a suitable (to them) ROI so it is critical to a successful exit plan to think like a buyer, not like someone parting with a precious heirloom that they are reluctant to let go. These emotional indecision's will kill more potential sales than any other single factor.
- The fact is rarely is a buyer buying for the same reason a seller is selling. The buyer is likely not buying for where the business has been, or even where it is today, but rather where he or she can take it in the future.
- Therefore it is in your best interest to do the research so you will understand the "intangibles" of the business and their appeal to a cross-section of buyer types by knowing your industry sector -- how it is fairing, its cycle with regard to attractiveness to buyers and the availability of financing for businesses within your industry.
- In addition to knowing your own business and industry realities and cycles, it is vital to understand the factors external to your business or industry that dramatically affect value. Market timing is often critical to maximizing value due to factors totally outside the individual business owner's control. Elements like the economy (local, national or global), natural or man-made disasters, wars or commodity shortages are all outside the business owner's control but have a dramatic affect on value and opportunities for a successful exit.
- In addition to these external factors, it is imperative that a business owner understands the realities of their own business. It is necessary to know your "real" business cash flow (recasting the financials for a reality check versus tax minimization). It is vital to diagnose or analyze the business to know its "SWOT" (Strengths, Weaknesses, Opportunities and Threats) status.
- Getting a credible valuation of the business is important to know the truth about the value of the business, as well as to document and justify asking prices to buyers or to potential financers of a purchase. A comprehensive look at what the future looks like for the business will be important to a potential buyer's decision to make an offer or not - and how high or low that offer is. All of this analysis is necessary to make an informed decision on whether to "GO" to market or "GROW" by enhancing the value of the enterprise first, taking into consideration market timing as well as personable variables.
- Another important consideration is the understanding that in a one-buyer scenario, the seller loses control. In a limited auction -- that is attracting more than one buyer -- the seller is in control and can play one off against the other to attract a higher offer. Consequently, getting maximum exposure (broad area marketing, probably nationally and internationally, over an extended period of time) is often critical to getting maximum value for a business.
- Remember not everyone sees the world -- or your business -- the same way you do. What is exciting and attractive to one buyer can be perceived by another as uninteresting or unappealing. That is true of individual businesses and entire industries. Yet another reason to seek as many buyer prospects as possible, to find the one or more who may have a serious and abiding interest in your type of business.
- Businesses are bought, not sold. If there are no buyers, simply wanting to sell does not make it so. And price alone is often an insufficient motive for buyers to take action. Terms and conditions, "bank ability" and the capability to obtain financing for the purchase, may be just as or more important.
- Be cautious -- very cautious -- in just how you seek these buyer prospects. Confidential exposure is critical to avoid the negative, even disastrous effects of poor confidentiality: employees leaving or customers bailing or competitors bad-mouthing your business or suppliers shortening terms or lenders calling loans.
- Finally, the "prepared" usually are the winners; the "unprepared" often experience defeat. As the saying goes, "luck is when preparation meets opportunity"! So, seek "professional" help to be properly and sufficiently prepared. The "best" in any endeavor always seek a "professional coach" rather than depend on "dumb luck" or their own devices. Rarely does the business owner have sufficient or accurate information on hand, up to the minute, or an objective perspective, to guide him or her in making and executing proper tactical and strategic decisions to properly plan for the future, resulting in either an unsuccessful sale or selling for less, leaving significant value at the table.
- Change the way you think and learn to think like a buyer;
- Retain professional help to analyze the business, recast the financials, obtain an accredited 3rd party professional valuation to get a baseline of what is true about your enterprise value;
- Be able to show (and understand) the "real" past and present of the business with independent documentation prepared by qualified sources;
- Have a Confidential Business Review that can assess strengths and weakness, show enhancement opportunities, and portray the future of the business so that prospective buyers can see it and get motivated;
- Realize that transition is inevitable and be prepared with a Professional Exit Strategy;
- Do all of this with a critical concern to keep it all confidential;
- Know that it is a process -- a series of actions and initiatives that take place over time -- and not a single event;
- And "commit" to the process the time, resources and attention it requires for you to implement the plan, get over any emotional roadblocks, and be prepared to play to win!