Selling your company goes beyond a simple transaction. By following these 7 steps, you can ensure that the sale of your business sets you up for future success.
This article will take about 3 minutes to read
From start to finish, a smooth acquisition process requires meticulous planning, careful consideration and diligent execution. Company handovers are comprised of many moving parts and several factors need to be considered before the business ultimately changes hands. With most of the focus moving to the acquiring party, people often discount the influence that the seller has on the success of an acquisition. But when you sell your business, you want to make sure it’s done right.
Where do you start? What’s the best way to find a reliable buyer? How do you set yourself up for success after the deal is done? Our industry experts shared these 7 tips for seller-success.
1. Prepare properly and start strong
When securing buyers’ interest remember that this is a sales pitch. The first step is to convince them that they want to buy the company and then once they’re hooked, they can work to convince you to sell your business to them.
Set the right tone by ensuring confidentiality. Undefined or non-existent confidentiality clauses can make buyers hesitant. Hesitant buyers are likely to draw out the selling process. After a while, the market may start to think that the problem is with your company instead of simply your selling process.
Know your strengths and weaknesses.
“In every business, you can have fantastic projections, but eventually it comes down to the people who will try to bring them to life,” explains Investment and Corporate Finance Advisor Rafal Andrzejewski. Key factors can be dependence on the CEO, market reputation, and diversified clients. Center your pitch around these strengths. At the same time, be prepared to answer questions or criticisms about the company without taking offense. Instead, turn them into discussion points that highlight the company’s growth potential.
2. Bring multiple buyers to the field
Negotiations with only one buyer can be difficult to manage. If a buyer realizes that they’re the only interested party, they may use this knowledge to leverage additional concessions out of the deal. Consider branching out to new networks or methods to find a wide range of potential buyers. Through digital channels, you can find potential buyers from around the world. The more options you have, the more you can shift the power balance between buyer and seller.
“Negotiating with just one buyer is a tricky situation. But in some cases, there will be only one buyer in real life,” explains Andre Barake, Senior Partner at GRT PARTNERS, a financial advisory firm focused on M&As. “Do the best you can to let them come to you. Remember you want someone to buy your company, not to sell it. Simple but powerful.”
3. Sell your Business to a Person
When you find a buyer, have them sign on behalf of both their company as well as themselves. In this way, the agreement is tied to the buyer as an individual so you can hold them personally accountable for the sale. This adds an extra layer of protection for you, the seller, in the case that the purchasing company is dissolved before fulfilling the purchasing price.
4. Don’t settle for future payment
Payments stretched out over a long period of time make for trickier handovers. Every company will experience a dip in revenues during an acquisition as the new buyers find their footing. During this time, monthly payments to the seller can tempt the buyer to renegotiate the sales agreement in line with current revenues or projections.
By obtaining all or the majority of the purchase price at closing, you can ensure a clean break and stop purchase payments from being an extended drain on the buyer’s account.
This strategy is also important to move you towards your next project. Be it investment or enjoyment, you want to move on to your next project right after you sell your business. Waiting around for incremental payments slows down the next phase of your career.
5. Be careful with the non-compete
If you’re building a non-compete agreement into the deal, make sure that you’re not accidentally limiting your future self. In general, the non-compete should specify the window of time and/or area in which you’re not allowed to build a competing business. This can be negotiated with the buyer and adjusted to suit both of your needs. Ensure that the wording of the clause allows you to pursue or invest in other similar business ideas after the sale of your company.
6. When in doubt, hire a professional
Just as handing over the reigns to your business can be difficult, so can handing over control of the sale. Although many business leaders are well versed in sales and acquisitions, it’s a different story when you’re looking to sell your business.
M&A advisors are a great option for CEOs who want to optimize their time and effort. Getting an outsider’s opinion on company strengths, weaknesses, and value can help you set and manage your expectations for the sale. Deferring to the advisor’s expertise will also allow you to keep your company in tip-top shape for the sale, while also giving you time to plan for your next steps.
7. Plan for Life After you Sell your Business
Many CEOs and business leaders have spent decades building up a successful business. So when it comes time to sell, it’s easy to get caught up in the actual selling and forget to plan what comes next. In regards to financials, it’s important that your purchase price aligns with the funding you need to continue with your next projects. Discovering too late that the net profit on a company sale is too little to secure your retirement or sustain your next business can lead to problems down the road.
Rafal W. Andrzejewski
Private Equity, Investment & Corporate Finance Advisor
Senior Partner at GRT Partners
Managing Director of LATAM & Africa at Opportunity Network