Article by Allen Harris, published in The Berkshire Eagle on July 3, 2021.
According to the Business Reference Guide, 80 percent of businesses put on the market do not sell (firms under $50 million in revenue). According to PricewaterhouseCoopers, 12 months after selling, 75 percent of business owners surveyed “profoundly regretted” their decision to sell.
Maybe selling a company is more complicated than people think?
I can’t blame business owners for believing it will be easy to sell. Owners receive “offers” every week. But, these offers aren’t genuine. They’re trying to pique your interest so that they can inspect you. Then they’ll point out all the problems that you don’t think are problems, and then (if at all) give you their real (and dramatically reduced) offer.
Selling your business is the biggest financial event of your life. You want to do it right — from beginning to end. It’s not like trying to sell a house, where you can step out of the deal with no consequences. You could lose customers, management may join a competitor and it will be hard to attract new employees.
Prepare to sell your business
You did the work to maximize cash flow and make yours a transferable business. You’ve verified with a certified financial planner what after-tax proceeds you’ll need to fund your next act — whether it’s retirement, starting a new business, or whatever other plans you have.
Whatever you think your company is worth, you’re wrong. You’re not objective.
Prepare to market your business to buyers
A qualified business broker will use the findings of your valuation to start your Confidential Information Memorandum (CIM) to present to potential buyers. The CIM won’t provide all the details, but you will need to gather those.
Confidentially pitch your business
The CIM is like a pitch book, but it’s not. The CIM isn’t provided to everyone. The business broker will build a shortlist of the entities that would be your natural acquirer. That could be a larger competitor, a strategic acquirer, a financial buyer, or a private equity group. The potential buyer doesn’t get access to the full pitch book until they are financially qualified and signs a nondisclosure agreement (NDA).
Fielding offers and negotiating
An offer has two primary components — the price and the terms of how and when you’ll receive payment.
Deal-closing and transition assistance
Let’s cut to the chase — don’t get ripped off. Structured payments are usually tied to the acquired firm reaching profit goals. But, when you sell the company, how do you manage the possible manipulation of P&L’s?
The business transition is like passing the baton from one sprinter to the next. When done correctly, it’s smooth; uninterrupted. Even though sprinters have practiced the handoff hundreds of times, sometimes the baton is dropped. If a business owner wants to get into the race and pass the baton, there’s more to it than handing over the keys.
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Please contact me if you would like to discuss selling your business.
Steve Niehaus, MBA, CBI, CM&AP