9 questions to ask yourself before selling your business

If you are looking to sell your business, we may be able to offer you some tips on how to get more benefits and reduce the downsides. We’ve put together this guide for you as a preliminary step on your journey to creating an exit strategy. This practical guide to selling your business will force you to ask yourself some essential questions. We can also help you work to maximize the business valuation of the company.

The sales process is both exciting and challenging. It is widely regarded as the culmination of many years of hard work. Let us help you learn the principles of creating strategic value in sales. Income follows business assets. What is your unique intellectual property? What is your hidden business asset, if any, that you can use to create an industry-leading multiple for your company and get the best price?

A business exit plan is often the reason a CEO or business owner calls us. We are a technology focused business coaching firm and at any given time one or more of our clients will be in or close to the sales process.

Aside from the obvious “what would happen if I sold my company?” there are several other important questions to consider before embarking on the journey of selling your business to potential buyers.

1. Why sell your business?

Selling your business starts with determining why it’s the right thing to do. What are your circumstances? Greg Crabtree, author of ‘Simple Numbers’, told me that he believes that every sole proprietor of a business gets a 50% to 100% return on their invested capital. In many cases, owners sell without much thought as to what they will do next to continue generating future cash flow. Nigel Bennett, author of ‘Take That Leap’, told me he’s glad his company’s sales have taken off and that he no longer has to sell T-shirts on the beach to fill his days. What do you plan to do with your time? Chris Budd He explained to me the tax implications of selling your business to your employees as a way to create personal value and leave a legacy.

Customers who sold in recent years had many reasons. One owner enjoys building more than growing, so he sold to build again. The team wanted to take money off the table, eliminate risk, and continue to grow as part of something bigger. The person believed that the time was right and that the amount would change his and his family’s life. Finally, one team accidentally created a service company and selling it allowed them to invest in a software company that was their true passion.

2. When will be the best time to sell?

It is essential to prepare for a sale at least a year, perhaps two years in advance, as this gives you time to demonstrate growing profits and a proven track record of your investment thesis.

Ask any business broker or professional advisory firm and they will advise clients. NOW is the best time to sell your business. They sell businesses and only earn commissions on asset sales. So they would, right?

If you’ve built a great or even good business with clear results and strategic value, anytime will be a great time to attract buyers. Thorough preparation and lack of time will often have the most significant effect on the final sale price.

3. How much does my business cost?

Determine the value of your business to you and potential buyers so you can set the selling price appropriately. Will potential buyers value your business based on tangible assets or future profits? Consider hiring a corporate financial advisory firm or business broker. Among other things, they can tell you what impact the management team has on valuations and KPIs you should consider before selling your company.

in my podcast The Melting PotI got good advice from two tech company advisors. Daniel Havercroft is a partner of Oakley Advisory, one of Europe’s leading independent corporate finance firms. In this episode, we talk about the best way to get the most value out of your life’s work.

When it comes to selling your business, you want to increase its valuation and be able to look at it through the eyes of a potential buyer rather than your own. To get the most value out of your sale, you’ll probably need to change some aspects of your business. Daniel He shared some of these changes with us. We discuss scale, growth rate, recurring revenue and profitability.

4. Do I need a business broker?

Decide whether to use a consultant or negotiate the sale yourself with a potential buyer. Speak with John Ratliff, CEO of Scaling Up Coaches and founder of Appletree Answers, a phone answering service he built out of his apartment in 1995. It grew to $30 million before being sold in 2012, far exceeding its market value. He believes that anyone selling a business should get professional advice. However, they should ensure that the due diligence process does not reduce the sale price if they do not.

I also spoke to the CEO of Arrowpoint Advisory Daniel Domberger. Much of the work Daniel and his team do at Arrowpoint Advisory – a division of investment bank Rothschild and Co. – helps entrepreneurs, owners and managers sell companies or get investments for them.

Entrepreneurs like to explore new paths and conquer new challenges, and for many of them mergers and acquisitions are another thing they want to learn. But, says Daniel, do you think that learning various unique semi-financial terms, ie the jargon of mergers and acquisitions, in order to master the art of discussion and negotiation, is the best use of your time and energy? Daniel believes there is value in leaving the structure of the business to the experts.

5. How will my company appear to potential buyers during the due diligence process?

Organize your financial records going back several years and conduct mock due diligence with an accounting firm to identify early warning signs so you have time to address them.

Daniel Domberger says, “If you’ve done due diligence on your own business before entering the market, it will allow you to close the deal much, much faster than if you waited for a buyer or investor to do due diligence at their own pace,” and at their own expense for the duration of exclusivity .” This is important because time kills deals.

Daniel advises start If you are in the technology space and need to review your license terms, especially the use of open source components, do your due diligence. .If you are doing something that is consumer oriented, make sure that the data processing terms are correct.

6. How do I find a potential buyer?

Finding the right buyer is a huge task that can take several years. The first step is to identify a short list of stakeholders. Once a potential buyer is found, there are a number of due diligence steps that need to be taken to keep the sales process moving forward.

A commercial broker or corporate financial advisory firm can help find potential buyers. They usually fall into the realm of commercial or private equity (PE). He probably sold more houses than businesses. Remember that a company that “promises” to give you the highest price is not always the right choice. Time and time again, I have seen selections based solely on the sale price of the business that do not lead to the best outcome for the entrepreneur or business owner.

If your sales representative can generate demand among potential buyers, the auction process can significantly increase the selling price.

7. How do I prevent my company’s performance from declining during the sales process?

Be prepared that this process will be difficult for everyone and the negative impact it can have on your business can be potentially huge.

Do not tell anyone that you are selling or thinking about selling your business. This will help keep distractions under control. I know it’s potentially stimulating, but employees, suppliers and customers can be anxious about news of an impending sale. Often the process is not complete and it is not possible to tell people.

Once you get to the due diligence stage, you’ll need to involve some of your team members, but the less you know, the better if you can handle it.

8. Are you selling your business to a trade or private equity (PE)?

Business or private equity; These two types of potential buyers will value your business differently.

For private equity firms, Rule 40 could apply. This is a measure in the technology sector to identify small, high-growth companies that show elite performance and achieve high valuations. The metric cleverly captures the fundamental balance between investing in long-term growth and short-term profitability. It is calculated simply by determining whether the annual growth rate of sales plus profit margin equals 40 or more. Earnings before interest, taxes, depreciation and amortization (EBITDA) is usually used as a measure of profit. In some circumstances, free cash flow or net income will be a more useful measure than EBITDA. This explains why companies with low profits but fast growth still earn high multiples.

9. Do you intend to stay with your company even after the sale of the business?

Did you intend to stay with the company after the sale of the business? This will affect your role in the company and the management team you will need to put together. This is often why the process can take two years or more. The owner doesn’t need to be involved in the day-to-day running of the business, otherwise the new owner will want you to be part of the transaction and see you as a business asset.

When the owner is part of the deal, about 30% of them make it to the final payment. The rest feel frustrated, demoralized or disenfranchised and leave.

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