Time To Sell Your Business
Most businesses are service-based businesses and or, if you will, consultancies. What do you, as an owner, need to do to get your business ready for sale? Some of the standard answers one might see are grow the business and/or keep margins high. Get your legal and accounting house in order – have files ready to go for a buyer’s due diligence, and make sure you’re getting your valuations and reviews from reputable professional firms. OK, it’s a bit like the dating advice given you by your mother – such as brush your teeth, take a shower/bath, and use deodorant, and for goodness sake sit up straight! It is correct, but there is more.
So what else is missing?
Well, here are some other things to keep in the back of your mind. Avoid entering into investments, business deals or compensation arrangements that will potentially make things difficult for the purchasers. Complicated equity rights and exclusive dealing arrangements are particular areas of concern as many cannot wrap their heads around your intentions and will back away or proffer a lesser value on the business. Just because you think it is a good transaction and understand it, does not mean a buyer or their lawyers will understand the transactions.
Don’t worry about multiple suitors until a process starts, but at that point focus heavily on it. No other factor will drive valuation higher than having multiple bidders in play… to a point. You cannot drive that point home to all suitors – or you will have none. Like the girl at the dance, you cannot tell everyone you want to dance and then have a hard time making a choice – the suitors will walk away.
A key challenge with any service business is showing how the business will have continuity once the principals exit the business. Establish a team of advisors who can help you start to plan for such a transition. Talents to look for in your advisors include identifying attorneys, accountants, and investment bankers that have M&A experience. If such persons are not already present within your existing circle of advisors, find them. Also look to those who have had experience with your type of business. They may have their own suitors in mind.
How do you ensure that the company will survive after you have left? One must also pin down the other knowledgeable workers so they do not leave. It is however very difficult to keep talent in a shop when the shop is being sold – the insecurity of a pending sale breeds a need to flee. Binding those important people to the business can be done through agreements. I have seen this done with a bonus plan that is generous but does not vest or payout until several months after the completion of a sale or merger. Yes, this also contradicts what was said earlier about entering into new compensation agreements – but all suitors will understand.
Keep your plans private; do not talk about sailboats or mountain retreats. Focus ever more diligently on the business of the business.
I also suggest that as a small business owner, you leave a good deal of the money you have expensed for events and travel and corporate hospitality in the business to push up your margins. I know all business owners buy or lease things to consume of the money pre-tax. Stop that, and bang the money back into the business, as it will have a multiplier effect on the value of the business.
The best advice is not from lawyers or accountants, or even the Aegis Journal, but from other business owners you know who have sold their businesses. Lawyers and accountants have their own views and skills – and they are needed at the deal-making table. You need a person who has done successfully what you plan to do. It is best if the table this person sits at is not at the deal-making table but at your dinner table. Their private counsel will be invaluable. Reward them handsomely and warmly for their help.