Most business owners exit their companies via a formal transaction, such as a sale to a third party or family member. A third party sale can be lucrative, but also comes with some frustrating variables that can deter many sellers. So how can you tell if now is the right time to sell your business? And how can you manage the process once you’ve made the decision? Thoughtful exit planning is key.
This begins with confirming that you are operationally, psychologically, and financially prepared to sell. Consider asking yourself the following questions:
- What after-tax proceeds do you need for the sale to be worthwhile?
- What strategic steps can prepare your business for the sale and maximize the return on your investment?
- Do you hope to play any role in the business following the sale?
Next, consider these issues as you devise your sale plan:
Unlocking Business Value
If you are too closely involved in daily operations, you may miss key warning signs that may scare off a buyer. This can trigger purchase price reductions, and even kill the deal. Sell-side due diligence can help you anticipate buyer concerns and position yourself as strongly as possible for the sale. It also produces key financial information the buyer will want, and helps you address technological, operational, and human resources concerns that can play a key role in the success of the sale. In today’s market, due diligence efforts are more intense than ever, and sellers must be prepared for this.
Accelerating Closing and Identifying Risks
Undertaking a comprehensive sell-side due diligence process empowers you to identify risks early, when it’s still possible to address them and add value. This process may help you:
- Accelerate due diligence for a faster closing.
- Improve the accuracy of financial projections.
- Identify adjustments that may positively affect EBITDA.
- Consider who might be an ideal buyer.
- Increase competition between buyers and limit negotiations.
An ideal sale means multiple buyers competing over your company. The reality is that you’ll probably have to seek out buyers, and may have to work to create a competitive bidding environment. Identifying some attributes of the ideal buyer can help you weed out unqualified buyers. Categorize each as either necessary or ideal so that you can fairly evaluate offers:
- Finances: What is your ideal price and your absolute minimum?
- Location: From where will the new owner manage the company, and does that matter to you?
- Leadership style: Will the current management team remain, and how important are they to the transition?
- Purpose: Do you want someone to continue your legacy? Are you invested in what happens to your company following the sale?
- Industry experience: Should a prospective buyer have relevant industry experience?
Know Your Options
Many other considerations can help prepare you to sell your business. Consider the following:
- Have you considered the impact of income tax and capital gains?
- Have you contemplated a hold and grow strategy instead of selling now?
- Have you evaluated the current market demand for your business?
- Would it be better to divest a portion of the business to gain more immediate liquidity?
Ultimately, succession planning is all about considering your needs, goals, and financial concerns, then weighting those against the available options. You need time to build to the transaction you hope for, so begin planning early.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses.
Madison Street Capital understands the time sensitivity of corporate finance and is able to respond quickly and tenaciously to opportunities. Our approach creates corporate finance transactions where both business owners and investors mutually benefit. We have the knowledge, experience and relationships to match buyers and sellers, as well as to match the appropriate financing and capitalization structure to each unique client situation