By Bryan Livingston
Executive Vice President and Principal
Sooner or later entrepreneurs, business owners and majority shareholders reach a point when they know the time has come to prepare for a future when they are no longer in a leadership role. The time to step back from the day-to-day operations of a business or maybe even step away completely. It’s time to move on, or to transfer management responsibility to a new generation of company leaders. The reasons for reaching that point are as varied as the individuals who reach it. Some businesses, it turns out, are better prepared for their owners to take the next step than others. The following are five key steps business owners should consider taking today in order to prepare their business for a sale, recapitalization or other transactions down the road.
1. Diversify your customer base. Potential buyers will look at your company and want to minimize their risk. If your cash flow is dependent on one or a few major customers, the risk is greater to the buyer and that could mean that your business will fetch a lower sales price.
2. Make sure your financial reports are reliable and credible. We suggest that you have your business audited annually, starting at least three years before you intend to sell. However, audited statements are not a requirement for a sale. Of course, professional auditors will cost you, but you’ll be in a better position to get a premium price for your business if the buyer trusts your numbers.
3. Consider where you are in the business cycle. If business is down, you may want to pull back and wait out the down cycle until economic conditions improve. You want to have strong results to share with potential buyers, and ideally sustain your positive results throughout what may be a negotiation that lasts several months.
4. A potential buyer will look at the strength of your company’s management, especially the leadership that is taking your place. An acquirer is very rarely interested in putting their own top management in place after a transaction. If your team is strong and committed, your past success is more likely to continue. And that makes your business more attractive and more valuable. You can command a higher price.
5. You’ll need to explain why this is the right time for you to sell the company. Are there personal circumstances behind your decision? Is the company ready to make that leap to the next level and this is the way to do it? Maybe it’s just time for you to move on to another phase in your life. Buyers will want you to explain the compelling reasons behind the sale. Be honest and be prepared to share your story. Even multi-billion dollar market cap buyers are looking for the compelling reasons for completing a deal and opportunities for a win-win transaction.