Exiting your business for the highest price!
If you are a business owner and are looking to sell your business, achieving the best price requires a lengthy and detailed process in terms of preparation. Anyone who has been through this process will tell you it is no easy road - however nothing worthwhile has ever been easy. With a little effort and a lot of preparation for an exit, you can dramatically improve the result.
Risk
Basically it all comes down to risk - both within your existing business and risk of whether it can sustain its current earnings or improve them in the future. So the key to success is to lower the risk for the incoming buyer. This will greatly increase your chance of getting the highest price possible for your business.
When selling your business
If you have decided to sell, there are many things to consider. But fundamentally, the more stable the business is, and the rosier the future growth, the higher the price you will achieve. Also who you sell to is very important. This is called Strategic Value. You might be worth X to one buyer - but to another buyer - say a competitor (through a merger and acquisition process) you could be worth double that because they can leverage off your business, take you out of the market or save substantial start up costs.
Potential buyers could include existing management through a management buyout or (MBO) a private equity groups.
Here are some points to consider when looking to sell a business:
1. Make sure your financials are up to date - including historical and future
2. Make sure the business systems and process are documented
3. Tidy up your marketing material
4. Have a business plan updated and ready to hand over
5. Makre sure your staff and management are the best you can find
6. Make it easy for the buyer to come in, and easy for them to achieve what they want
7. Allow adequate time to prepare and execute the sale. Fire-sales will not get you the result you want.
8. Make sure your advisors are up to the task. This includes accountants, lawyers and coroporate advisors.
9. Do a legal and financial check up on your business and address any key risks that are uncovered.
10. Ensure all your contracts are in place and up to date - this includes staff, suppliers, licences, contracts, distribution agreements, leases etc
11. Ensure your IP is fully protected and can be easily transferred to the new buyer.
There are many other factors which can affect the sale price of your business such as:
- General market conditions - both on a macro and industry specifici level
- Your ability to ‘market’ your business to the right potential buyer - so targeting is the key
- The buyer’s current situation - e.g. they might be going through a re-structure and are not in ‘buying mode’. In the case of indiviudal buyers, maybe they are about to go on holidays or are in the middel of selling another business. So timing here is critical.
- Luck - sometimes you can be in the right place and right time.
The best advice is for an entreprenuers and business owners to prepare well in advance when they are planning to exit their business.
Len McDowall is the managing director of Integral Capital Group