Deciding to sell a business can be one of the biggest decisions an entrepreneur makes. It's not always an easy choice, but it's one that many business owners eventually face.
Preparing for the sale of a business is a complex and time-consuming process. Many resources are dedicated to the topic of how to prepare for a sale of your company. However, most resources simply focus on one key component in selling your business – how to prepare for due diligence. They don’t address the broader, more nuanced issues of how one prepares to sell their life’s work. The sale of a business is an emotional, complicated, gut-wrenching process. No one does it perfectly; often it requires professional help to complete the transaction.
Strong, profitable, and growth-oriented concrete, construction, and engineering businesses are in high demand for buyers, despite fluctuating economic challenges. Buyers are still actively searching for merger and acquisition (M&A) opportunities in these sectors. This widespread buyer/acquirer interest presents an opportunity for companies looking to grow or sell their business.
When preparing to sell a business, there are five principal areas that entrepreneurs need to focus on for a successful sale in today’s market.
1. Get Ready For The Emotional Roller Coaster
Selling your business is not an easy path. Emotions can quickly complicate the process. Entrepreneurs enjoy so many benefits of ownership, including having the autonomy of being the boss and earning cash flow. So, why sell?
Reasons can range from work/life balance to retirement to de-risking personal investment assets. It’s helpful to write down any reason or reasons for selling to remind you later of your goal. At some point in the process, you will inevitably get frustrated and discouraged as buyers examine your business with countless tough, challenging questions. It’s critical to always keep a cool head and the ultimate goal in mind. Remind yourself why you’re doing this.
Additionally, it is important to get an independent valuation of your company. Each of us knows our business is special and wonderful. Speaking with an investment banker or valuation expert can provide you with grounded feedback on what the company is worth and what to expect on the way there. A third-party evaluation helps set transaction expectations without emotions, and having conversations on valuation can help set appropriate expectations.
2. Identify The Second In Command
All good buyers understand that the founder or owner will at some point leave the business. One of the first questions buyers will ask is, "Who can run the business when the owner is gone?” It is important to identify a succession plan. Not only is this an overall good business practice, but it will add value to the sale of your company by reducing the risk associated with leadership and business knowledge. Without a succession plan, buyers will factor in the cost to train and replace the owner, which will ultimately come out of the purchase price. Identifying someone upfront helps avoid pricing drama and helps keep the decision in control of the seller.
3. Clean Your House Before Inviting People Inside
It is fundamentally important in any sale process to create the best first impression possible. Take the perspective of a buyer as they go to review your business initially. Their first move will be to research a company’s website and social media. If it doesn’t present a good picture or is not up-to-date, it should be refreshed.
Second, look at operations to confirm they are running as efficiently as possible. Lastly, take the time to clean all facilities and ensure they are neat and orderly. With onsite tours, a clean and professional space will make a good first impression on potential buyers.
4. Prepare For Diligence
No one enjoys due diligence – it requires a considerable amount of work to pull together and prepare all required information. In today’s digital world, most M&A processes have secure digital “data rooms” that can easily accumulate thousands of documents. These data rooms gather all your documentation regarding the company including financial statements, customer contracts, vendor agreements, sales and marketing materials, intellectual property details, human resources files, and legal corporate documentation in one secure online location.
There are standard lists for due diligence requirements that are several pages long and ask for everything under the sun. Gathering all this information can be a daunting task, and it’s best to start early when there is ample time to pull it all together.
5. Tell A Powerful Story
Every company will find existing limitations and weaknesses following due diligence efforts. Business owners should not take this personally; it simply needs to be addressed. This is where an investment advisor can prove worth – by asking the tough questions in a “safe space.” A practiced and competent advisor can review the diligence materials and identify issues or holes before any deal discussions take place. It can be very helpful to thoroughly discuss any potential issues among insiders and trusted advisors before having it come up as a surprise in interactions with potential buyers, as diligence surprises can create opportunities for buyers to reduce the purchase price and can easily destroy trust in relationships and negotiations.
For example, customer concentration will frequently come up as a concern in a deal. Don’t hide it, own it. Describe the reasons your customer is loyal and favorable and how you are building the business to reduce concentration. Likewise, share upfront if you have been involved in litigation or experienced employee turnover. It’s critical to disclose the scary stuff, but also important to share a favorable version of the story. Every serious business acquirer has already seen or experienced these difficulties themselves. Getting out the full story proactively prevents it from being used against you negatively in later discussions.
To summarize, selling your business simply can’t be summed up into a pretty list and a simple process. Every transaction takes its own turns and twists. Addressing these five principal topics can help entrepreneurs prepare for a complicated process. Whether focused on cultural fit or maximizing value, owners who are prepared for the process will find success. And ultimately, throughout a difficult, and oftentimes emotional process, finding the right investment banker or advisor can help alleviate many of these pain points and maximize the right outcome.
