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How to Prepare Your Business for Sale

By Generational Equity

02/17/2020

Attendees at our exit planning conferences often ask us: “What is the most important strategic issue I should address in order to sell my company for maximum value?”

Of course at that point, without a full evaluation of the business which is the first step in our process, we really can’t answer that question, since what each business owner needs to do to create a “buyer ready” business varies from company to company.

However, in general, there are a number of reasons why transactions fall apart, why buyers walk away from opportunities (and sellers too). The key issue to realize is that buyers have an abhorrence to risk. The higher the risk perceived in your opportunity, the greater the chance that it might fall apart. 

So here are a few reasons why deals tend to fall apart:

  • Unrealistic expectations on the part of sellers regarding business valuation and/or the terms and structure of the deal
  • Lack of professional advice during the process
  • Declining revenue and/or profits
  • Inaccurate or incomplete financial statements and business documentation
  • Excessive customer concentration
  • Owner dependence (i.e., all decisions are made by the owner)
  • Lack of recurring revenue streams (stable revenue base)

The good news is this: With a little guidance from a professional M&A firm, and some hard work, any and all of these can be overcome as you create a “buyer ready” business – one which is considered acquirable because the risk has been ameliorated.

Preparing a Buyer Ready Business

So if you look at this list in relation to your business, do not feel despair if you have a few of these items checked off. The first step in creating a buyer ready business is to realistically look at what you need to improve. However, we find that this first step can be very difficult for many business owners for several reasons.

First, you are too immersed in the daily operations of the business to realistically evaluate the company. One reason Generational is so successful in closing deals for our clients is that before we take any company to market, we conduct a full evaluation of the business.

Then, based on that evaluation, we come up with a roadmap for enhancing value that the owner can implement immediately to begin improving the salability of the business. We find that this helps us close optimal deals for our clients even if they are implementing value-enhancing strategies while we market the company.

In addition, even if you have the time to objectively review your business, since most business owners have little to no experience in exit planning, far too many have no idea what to work on to make the business less risky to buyers. In fact, far too often owners implement the wrong strategy in hopes of improving the salability of the business.

This is why we believe that the primary reason deals fall apart is due to mistake number two listed above: Not hiring M&A professionals to guide you. 

If fact, one could argue that making that mistake could eventually cause you to make all the others. For example, without professional advice how will you ever know the true value of your business and what deal structure is best for you? How will you address any historic declines in revenue/profits? How can you create accurate and meaningful documentation?

All the issues above could arise without the help of an M&A professional, causing your deal to fall apart!

This is something that you don’t want to happen at the 11th hour of any buyer negotiations. Not only can it be emotionally devastating to you and your family, but it opens you up to a whole host of potentially negative consequences that you want to avoid at all costs.

That is why we recommend to business owners that the very first step in selling your business is hiring an M&A firm to represent you. Without this guidance, you will have a real challenge in addressing the risk in your venture and building a buyer ready business.

And here is more good news: Generational Equity is ready to guide you on your exit. Keep in mind that any type of exit is truly a journey, NOT an event. As with any journey, preparing in advance is vital. Hiring our firm can help you address any and all risk factors and prepare both your company and yourself for an optimal exit.

Our journey with you begins when you attend one of our complimentary exit planning conferences that we hold throughout North America on a regular basis. Or, to learn more about all the services we offer, follow these links:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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