Selling a business properly takes advanced planning, patience, and the right team to support you through negotiations. While it can be daunting, sellers who put in the work to prepare their business and optimize the sales process are ultimately able to secure a favorable deal that meets their financial and personal goals. Follow these key steps for successfully selling a business at the highest valuation possible.
Prepare Well in Advance
Selling a business takes time. Keep this in mind when you want to sell your business and begin preparing at least a year before you plan to go to market. Get all financial records in order, document processes and operations, and make any necessary operational improvements. Having organized records and tight operations will demonstrate the health of the business to prospective buyers.
Determine the Best Time to Sell
Market conditions impact valuation. Study industry trends and economic forecasts to determine optimal timing. Selling during a downturn will reduce the price while capitalizing on an upswing or positive momentum can boost value. If possible, time the sale to take advantage of positive market conditions in your niche.
Get Your Finances Audited
Purchase offers will be contingent on verification of the financials. Have your books audited by an independent CPA at least 6 months prior to putting the business on the market. This will identify and correct any errors and red flags.
Set the Right Asking Price
Overpricing will limit interest and reduce offers. Underpricing leaves money on the table. Work with a qualified M&A advisor to determine fair market value based on assets, cash flow, growth potential, and comparables. Set the asking price based on actual value, not emotion.
Prepare a Confidential Business Review
A Confidential Business Review (CBR) is a prospectus detailing operations, finances, management, competitive advantage, and growth potential. This allows buyers to evaluate the opportunity without initially disclosing their identities. Limit access to vetted prospects only after they sign an NDA.
Market Confidentially at First
Keep the sale confidential in the early stages. Widely publicizing that the company is for sale could compromise morale, partners, and credibility. Targeted outreach to qualified prospects helps control the message and environment. If negotiations stall, you can always open up marketing efforts.
Vet Prospective Buyers Thoroughly
Not every buyer is a fit for a business. Screen carefully to find buyers that align with your mission and values, have the resources to close the deal, and have a growth vision for taking the company to the next level.
Hire an M&A Attorney
Work with an attorney experienced in M&A deals to review offers, negotiate terms, and create final contracts. nuances like representations, warranties, and indemnities can significantly impact the favorability of a deal. Experienced counsel is key.
Negotiate Earnouts and Retention Packages
Earnouts and retention packages help bridge gaps between asking and offering prices. Earnouts tie additional payouts to post-acquisition performance. Retention packages incentivize key employees to stay on through transition periods.
Don’t Lose Momentum
Selling a business is a marathon, not a sprint. Maintain operations, services, and perception throughout the process. Losing deals, customers, or employees during sale talks will directly impact valuation. Buyers want to see consistent performance.
Allow Time for Due Diligence
Vetted buyers will conduct thorough due diligence before closing a deal. Compile requested information and allow several weeks for buyers to comb through details. Attempting to rush due diligence can jeopardize or derail deals.
Make the Transition Smooth
Once you’ve signed and closed, take time to ensure proper knowledge transfer. Train the new owners on vital systems, processes, and contacts. Wrap up loose ends with employees and customers. Hand off everything neatly and the new owners will start off on the right foot.
Selling a successful business takes advanced preparation, marketing, legal support, and patience. However, owners who plan properly and work with the right team can maximize their valuation and deal terms while also finding a buyer that fits their objectives. Do your homework and you’ll be able to exit your company on the right terms at the right time.