Nine Steps to a Successful Business Sale – Part 1: Goals and Planning

Nine Steps to a Successful Business Sale Part I: Goals and Planning

You’ve spent years building a profitable business.  Now you’ve reached a point in your life that makes you pause and consider the future of the business.  Maybe you have reached “retirement age” (whatever that is any more).  Maybe you want to pass the business on to your children. Maybe your employees want to buy the business from you. Maybe you’re tired of the  COVID pandemic’s effect on your business.  Maybe you’re just ready for something new.

If you have developed an exit plan, you can follow your plan.  But many small and medium-sized business owners don’t have a formal exit plan. If circumstances arise to make you consider a sale, you may not have time to do a formal plan.

Estimates are that 70% of privately owned businesses on the market don’t sell, particularly businesses valued at less than $5,000,000.

What’s your next move?

In this series, we’ll look at nine steps to successfully plan and execute the sale of your business. Conceptually they are simple, but they can be difficult to implement. If you put in the effort and discipline to follow these steps, you’ll be better prepared, and your sale will go more smoothly.

Step 1:  Clarify your Goals

If you’re like most business owners, your main goal for years has been to build the business, without much thought for your exit strategy.  It sounds simple, but the first step is to clarify both your business and personal goals.

Do you want to sell?  Are you actively looking to sell your business?  Are you still getting the personal satisfaction from running it that you did before? Do you see that your industry is contracting, and you don’t want to manage the business through yet another tough time?

Did you get an unsolicited offer?  Perhaps from a private equity firm, competitor, or strategic partner to buy your business at what looks like a good price? Maybe you haven’t thought about selling yet, but the thought intrigues you. If this is your situation, you probably want to evaluate your options; but you also don’t want to lose the existing offer.

Is it the right time to sell?    A good time to sell your business is when you have a buyer. A better time is when you have two buyers.   Not all business owners have that luxury.  Have you just started a new sales initiative that may take two years but will result in a much higher company valuation? Are you just about to close a big contract that will improve revenues for the next five years?  Could you improve value by cleaning up some issues with the business that might take a year or two?  Have you just pivoted to deal with the COVID-19 pandemic? These factors might mean you want to postpone the sale. On the other hand, if you postpone the sale, the market may have reduced the EBITDA multiple it’s willing to give your business, so your overall valuation may be lower when you want to sell.

COVID-19 Concerns. In the COVID-19 market, some businesses have been badly hit by the pandemic and the economic shut-down. If yours is one of these, you may not have many options.

If, however, your business is “COVID proof,” providing goods (such as PPE) or services (such as home food delivery) you may be able to command a premium for your business.

What is your Next Act?  Are you ready to retire? Do you want to move to the Bahamas and buy a sailboat? Or do you have a great idea for a new business, and your plan it to sell this business to   finance your Next Act?

Do you want to hand your business down to your children?  Many family businesses are handed down from one generation to the next. If this is your goal, you’d want to consider if the next generation is really interested in running the business or not. Do they have the skills and experience they need? What do you need to do to prepare them in order to pass the business on successfully? There are many succession planning issues that we will discuss in other articles.

Who Is Your Buyer?  There is likely only a limited number of serious buyer candidates for your business, and you likely know many of them.  If you are looking for a buyer, how do you find a good one? For a company valued at over $5,000,000, a private equity firm may be a good candidate. For smaller companies, buyer candidates may include business competitors, strategic partners, strategic investors, key vendors or customers, or your management group.  If you can identify these buyers, you can plan how to best to approach them.  You may want to engage an investment banker to market your company to a group of qualified buyers.

If you have received an offer to buy your company, what do you know about the buyer? Some preliminary due diligence on the buyer can save you time and troubles later on.

“Soft” Qualifications.  Many sellers add “soft” qualifications for their buyers. You may want the  buyer  to continue your commitments of quality and service to customers; your commitment to employees and stakeholders; commitment to charity; or other important aspects of your business culture.  Some sellers care less about the character of the buyer and more about the price and terms.  Each seller must make their own decision as to which, if any, “soft” qualifications are important.

Allocate Management Time and Resources.  The sale of the business will take a lot of time and attention from management, possible for an extended period of time.  These same managers will be needed to keep the business operating. These conflicting demands can be balanced with some advance planning.

It Takes A Team.

Select your team of experienced professionals.  Establish a plan for how your team will work together efficiently.  Your team should include:

M&A Attorney.  The sales planning process involves a wide range of legal issues.  You’ll need an attorney with experience in mergers and acquisitions to help you. Frequently a company’s general business lawyer is not equipped to deal with a complicated M&A transaction.

Investment Banker.  An investment banker can be critical to the sale of a business.  For    some small businesses, owners may be tempted to sell the business themselves to save the fees.  Consider the advantages of an investment banker before deciding to sell the business  yourself.

Accountant. You’ll also need an accountant with experience in M&A. Frequently in small  and family-owned businesses, the accountant who handles the books and does the tax  returns may not have the expertise for an acquisition.

Valuation Expert.  If you don’t hire an investment banker, you may choose to rely on an independent valuation expert.

Estate Planning. Selling your business may be the biggest financial event of your life.     You’ll want to minimize your personal tax exposure. If you don’t have a formal estate plan, now is the time to create one.  Find a good estate planning lawyer.

Financial Advisor.  With luck, you’ll have a lot of cash after closing.  A financial advisor can help you plan how to invest the proceeds of the sale to meet your personal financial goals.   If you don’t have a financial advisor, find a good one now.

An experienced M&A lawyer is indispensable. He or she can guide you, manage the sales process, and introduce you to other professionals you may need for your team.

Decision Point.

Is it time to sell the business?  Consider your goals, both business and personal. Look at your options. Talk with your board members and other owners.  For many small business owners, a discussion with a spouse is the single most critical item.  Do some soul-searching.

Then make your decision.

In the next section, we’ll discuss the process of selling your business in some detail. Understanding the selling process is crucial to a successful sale.

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David Peteler

David Peteler

For over 30 years, I have helped a wide range of clients achieve their business goals. I have worked with companies ranging from Silicon Valley tech start-ups to local Minnesota businesses to Fortune 500 companies. Read David's Bio.

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