You have been working to create a successful business for many years, and you’ve decided that it’s time to try something new. You find a reputable investment banker who is able to sell your business and you begin to make your retirement plans; your spouse starts getting excited. Then the problems begin.
Your investment banker has your business valued, by a certified valuation analyst, to determine it’s true value and tells you that your business, your number one asset, is not worth anywhere near what you’ll need to live for the rest of your life. Unfortunately, it’s not an uncommon situation.
What do you do now that you can’t afford to sell your company? Many owners continue on, but the passion is gone. They continue to work feverishly, trying to add value, so they can sell, but the value of the business begins a steady decline, and they either ultimately sell at a steep discount, or don’t sell at all. This scenario could have been avoided with proper planning.
Take a step back
One of the biggest problems encountered by people selling businesses is that the owner has too much involvement in the day-to-day operations of the business.
A recent survey conducted by “The Sellability Score” found that companies that were able to perform well without their owner for a period of three months or more are 50% more likely to get an offer to be acquired when compared to more owner-dependent businesses. In other words, the more valuable the owner is to a business, the less valuable the business is without them.
The importance of having a successful and motivated management team may be the difference between getting the highest value possible, and not selling at all.
Conduct a test and take a short vacation. Unplug the computer, turn off the cell phone, and let the management team do the jobs you’ve trained them to do.
When you get back, see how well they’ve done. Help them to do better next time. Provide the resources they need to be successful without you. It may be the most valuable thing you’ve ever done for your business.
Identify key employees
Next, let’s talk about key employees. Key employees are people you can’t afford to lose. They have a direct and significant impact on the value of your business. They have skills and experience that are very difficult to replace. And they have an important role in the strategic future of your company.
What happens if you are about to sell your business, you even have a potential buyer, and one of your key employees decides to leave your employ and work for your competitor? Yes, this has happened.
To add insult to injury, he or she takes several of your best customers, and other employees, with them. That could be crippling to your company. It would certainly change the selling price, wouldn’t it? This circumstance can be avoided, with some effective planning.
How do you keep them from leaving? You “show” them that you value them. You design incentive plans that will motivate them to stay with the company long after it is sold. In other words you handcuff them to the business. That way you can keep the value in your business that a potential buyer is looking for.
Do your due diligence
Let’s begin by defining what due diligence is. Due diligence is the process a potential buyer, and the buyers representatives, will use to get acquainted with your company. They will examine all aspects of your business, including your contracts, procedures, systems, plans, agreements, leases, manuals and financial records.
The buyer is looking for any item that will affect the selling price of your company and determine if they actually want to buy it. They are looking for reasons to decrease the price and are very good at finding them.
What happens when they discover that most of your information to train employees is in your head? What will they do when they find that you haven’t automated your major procedures, or can’t find your lease to the building you rent? Do you think that will change the price they are willing to pay? What if your financial records are a mess and you don’t even produce a monthly financial statement? How will they be able to determine how much they should pay?
Before the due diligence process begins, you have control of the information flow. After it begins you give up much of that control. Put yourself in the buyers shoes and prepare your company for sale. Begin the due diligence process as quickly as possible so you can get the maximum price in a sale.
Don’t get stuck in a bad situation when you’re looking to sell your business. We can help you prepare. Contact us for a free evaluation today.