Hint: It’s BEFORE you’re ready to do so
In an ideal world, business owners should start the conversation five years prior to selling. Many will balk at this for being too far away to do much good.
Reality tells us otherwise. It will take typically eight to 12 months from the time a company begins the actual sale process to the point at which a transaction closes, assuming everything goes smoothly. Moreover, to maximize value, many purchasers would like the owner to stay with the new company for as long as three years after the deal closes to ensure a smooth transition and continuity with customers, etc.
Most important, though, owners should give themselves a year before putting the business formally on the market to get ready. They must take the time to get educated on all the particulars required to achieve a positive outcome. Doing so will raise their chances to get a deal done. The comprehensive list includes:
Understanding the phases of a sale process including evaluating their company’s intrinsic value, thinking about the different categories of prospective buyers, what some of the important terms of a transaction might be, who will draft the required documents and getting the transaction closed.
Selecting the team to work on your behalf including the investment banker, transaction attorney and tax advisor.
Talking with an M&A advisor several years ahead of time can also help identify any potential “deal breakers” that may exist within a company’s operations or structure. Determining what, if any, parts of the business to shore up — such as productivity, management, margins or any concentration issues — can raise the probability that a sale will occur and command a strong price in the market. The right investment banker can assist in this regard. They can leverage their experiences in working with businesses from many industries to creatively devise ways to improve specific areas that will translate into a higher value of a business. We do this by providing business owners a “valuation prescription” that outlines steps owners can take to improve value and/or decrease the potential impact of factors that might decrease value.
All this does not discredit a business owner who decides to sell their business today. Economic factors — both positive and negative — along with timing can play a huge part in that decision. With some planning and the right team at your side, you will have planned to achieve the highest value the market is willing to pay for your company.
About The Authors: Tim Malott and Kerry Morris are Partners with Shoreline Partners, and have led numerous sale, merger, acquisition and financing assignments across a wide array of industries. Malott is a former CPA and bank president; his career spans public accounting and commercial banking as well as investment banking through which he has gained knowledge and experience in nearly every industry and business sector. Morris has served as CFO for a number of companies in San Diego county where he gained experience performing merger and acquisition transactions and capital formation. They can be reached at email@example.com and firstname.lastname@example.org.