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Any rational approach will involve an owner-centric situation assessment, goal definition, a view of the viable options, a chosen course of action, and implementation discipline.
We offer a proven, systematic approach. We help owners focus on maximizing value because 85%+ of businesses can make very substantial gains in market valuation throughout the selling process. It’s turnkey – and flexible. We have two versions – a time-driven value acceleration and a build-to-sell enterprise strategic program. Our results bring more offers and higher prices. You get greater time and financial freedom before, during and after transition.
The key indicator is when you feel yourself losing energy / interest in taking your business to the next level. The single biggest mistake owners make is waiting too long to take steps toward selling. A rule of thumb is plan on a year to sell, and a year of preparation for every decade of operation – assuming you want / need to try to get what the business is worth. Leave some time and energy for a final push, so you get full value for your life’s work – and don’t sell yourself short.
Key timing factors you don’t control are your industry’s and macro-economic trends. But rather than try to guess timing, the smart move is to get transition- ready, even if you don’t need to sell right away. Transition-ready business are worth more – and you will be better able to act opportunistically.
This is very likely to be the most significant financial (and personal) decision of your life. There are three smart things to do:
1) Get smart / do some reading. What you don’t know about selling a business can literally cost you a fortune. Here are four good, useful, easy reads: Walking to Destiny (Snider); Traction (Wickman); Exit Planning, The Definitive Guide (Brown); Built to Sell (Warrilow)
2) Carve off and delegate selected value-building tasks to the heir apparent, key people on your leadership team as they are ready, willing, able. Aim to free up 15%-20% of your time so you can shift from “hands on, head down” to “hands off, head off.” Move toward working more on your business than in your business. Try to get your business able to thrive without you. You will benefit hugely with more time and financial freedom. This also reduces a buyer’s risks.
3) Get some help. CPAs, financial planners, business brokers, insurance specialists, estate/tax lawyers and business value consultants all bring specialized expertise. If you have done some reading, you’ll be well informed to pick the right people for you, ask the right questions – and learn what’s critical to a happy and lucrative sale.
Hugely important question – a full answer is beyond this immediate scope. However, recognize that you will inevitably transition out so your perspective should shift from your business as a job/profession, your baby, to your business as an investment. That said, with each group of people (family members, partners, employees, customers, suppliers, etc.), the love you take is equal to the love you make – so regret in advance - and try to leave a legacy you’re proud of, anchored in fairness. Finally, it’s healthiest to look beyond the sale .... Be sure you have people to love, things you find worthy, a life to look forward to.
Few buyers can simply pay all cash – most seek to leverage some financing (including perhaps some from the seller) to acquire a business. This has important consequences- it adds time, complexity and impacts due diligence.
Due diligence is often where deals derail. To an owner, it can feel like financial proctology. To a buyer, it’s how they identify and manage risk. Since it’s future cash flows they are buying, they’ll want relevant insights, evidence of predictability and confidence in the numbers. In detail. At least three years worth.
Virtually all owners overestimate what their business is worth. There are actually several data-based methods and thus valuations, outlined in the kind of books noted above. Generally it’s some multiple of revenue or EBITDA, and reflects estimates of future cash flows, mitigated by risk. (IP/legal exposure; undiversified customers, suppliers; over dependence on the owner or key employees, etc.) There are many risks a buyer will perceive – which is why value building must adopt a buyer’s point of view to be impactful.
It’s common for owners to write off expenses that benefit just them, not the larger business. (cars, insurance, memberships, etc.) These need to be pulled out to get a true picture of the business’ financials, called a recast. This is an important thing to factor in.