You’ve spent decades building the equity value in your business. Why leave anything to chance when it comes to one of your most important accomplishments — turning your private illiquid stock into cash? What potential risks and opportunities would prospective buyers see if they started their due diligence?
This blog focuses on the top 11 factors business owners should consider when positioning their companies for a successful sale. Proactively positioning your company for sale is even more important if you want to maximize your exit value; in other words, sell your relatively small company to a large buyer. Here’s why.
In more than 20 years of deal making, my experience suggests that owners who are proactive about understanding the perceived risks and opportunities buyers will unearth during due diligence are twice as likely to generate premium valuations and outcomes compared to those who simply react during a sale process. Starting this evaluation years before a transaction gives you ample time to course correct and actualize your company’s value.
Here are the 11 most important elements business owners should strengthen to optimize company value for a sale:
- Ensure the business owner/CEO is expendable. Train and empower your lieutenants with an ownership mentality. Most buyers presume owners will struggle with and ultimately reject working for someone else. Showing depth in leadership gives your company more value.
- Set up and embrace a strong, centralized, and comprehensive information infrastructure and repository. Knowledge capture and enterprise reporting across operational KPIs and back-office functions gives you credibility throughout due diligence and supports a quick and clean transaction.
- Minimize your customer concentration and maximize your financial visibility. Ensure that when buyers look at your financials, they’ll conclude that there are minimal risks to a material drop-off in historical performance.
- Monitor capital, company, and industry dynamics relevant to your exit timing. Don’t let the proverbial musical chair fill up and leave you without a partner — or worse, on the downside of your value curve.
- Create real competitive differentiation and barriers to entry. Position your company in the market so when large buyers look at your company, they’ll see that you are a true specialist. Buyers prefer narrow and deep expertise over broad and shallow competence.
- Prioritize organizational scalability. If a buyer asks, “Can the business and its underlying processes support a business two or three times your current size in 18 to 24 months?” you can confidently answer, “Yes!”
- Complete a financial audit or quality of earnings before a sale, including a sales tax audit. This mitigates the likelihood of your valuation being re-traded during exclusivity or having your deal go off the tracks entirely.
- Define and stress test your future plans for growth. Make sure your growth strategy reflects your vision, your unique product and service positioning, your superior understanding of your market, and most importantly, your validated growth drivers.
- Create a business consistent performance. This ensures you can command a premium valuation based on future performance, not just historical results
- Prepare yourself mentally for what happens next. Prepare yourself and your personal finances so you don’t experience seller’s remorse, and/or see too much of your proceeds go to taxes instead of you and your heirs.
- Firm up your advisory team. Assemble an advisory team that can help you prepare the 10 items above, develop a long-standing relationship, and that will avoid a hasty selection and sale.
You have worked hard to build a valuable, salable business. As you approach the finish line, take these steps to actualize the value of all your accomplishments.