In Part 1 of this article, I noted that Baby boomers will be attempting to sell an estimated seven million businesses on the open market in the next 15 years. This makes for a challenging environment, to say the least. But there is another factor, much harder to quantify: The increasing number of talented people who can and will buy a business, rather than bet their career on the increasingly uncertain prospects in the corporate world.
The good news is, there will be potential buyers for the most attractive and well run private companies, and if you’re selling your business you’ll want to be at the top of that group. Part 1 of this article focused on developing a self-propelled business. Part 2 focuses some basics of what the sales process involves.
4. Evaluate your company’s readiness for sale: Once you have established your long term goals and the plan for achieving them, it’s time to familiarize yourself with the elements that will determine your company’s value at time of sale. Establishing the company’s valuation involves a number of factors, but two issues will be dominant in most buyers’ minds:
Cash Flow, and Sustainability of the business.
The buyer will convert your company’s cash flow from recent years into the amount of annual cash flow that they can expect to realize when they take over. A multiple of cash flow is the dominant factor in the sales price, and recent sales of comparable businesses are taken into account in determining the multiple. But, more than comparable sales, the buyer will place great reliance on their assessment of the sustainability of your business in projecting their future cash flow expectations. This assessment will involve an exhaustive due diligence process, reviewing everything from products, customers and competitors to legal and insurance documents.
5. Learn what you’ll need to provide in the due diligence process –
and get started: A buyer will want to satisfy an exhaustive list of questions prior to closing the transaction, and every unsatisfactory or incomplete answer is an opportunity for the buyer to discount their offer. There will also be a limited amount of time to respond, and if you drop everything to focus on closing the transaction, business results may suffer, bringing down the valuation you finally receive. Many if not most of the questions that will arrive in due diligence can be anticipated, and you will want to complete and assemble as much of the information and documentation as possible in advance. You will want to have a method of tracking the due diligence process so you can be assured that, when the clock starts ticking, you and your advisory team respond quickly and remain in control of all the tasks and information needed to complete the process.
If you would like to learn more about the process of developing an exit strategy, implementing your exit plan, and managing due diligence, please contact me at RobertBurger@b2bcfo.com. I will be glad to discuss any aspect of your business and to provide you with a copy of The Exit Strategy Handbook, an exclusive publication of B2B CFO® written by founder Jerry Mills.