I’ve recently spent time with two entrepreneurs who are beginning to think about selling their respective businesses.
In both cases, the sale is well in the future but the entrepreneurs understand that preparation for a sale needs to start long before you're sitting across the table from a potential buyer.
My guidance was focused on what the owners need to be doing now in order to drive value at the time of the transaction. In addition to a list of action steps, what I especially encouraged them to do is adopt a new mindset around their businesses.
This is imperative because any business owner who wants to eventually sell needs to think and run their organization differently to fully make the transition from "growing and operating" to "creating value and positioning for sale."
YOUR ACTION STEPS
When you shift from thinking you're going to be working in your business forever to considering whether or not you have a business that someone would want to buy, there are three essential steps you should take to prepare:
Create an Owners' Plan: All owners of the business need to clearly state what they each want to achieve through the business and through an exit. Understanding everyone's expectations will greatly influence how you prepare the business for sale . The owners' plan should explore how long the owners want to continue to work in the business, their expectations for financial gain at exit, who the ideal buyer would be and how key employees should be treated. These discussions can be difficult, but they're necessary for making sure next steps take the owners to the outcome they want.
Buckle Down and Get it Right: Once the decision to sell the business has been made, your goal should be to get the business in the best possible shape in terms of financials, business processes and management. This step can be very hard for business owners because preparing for sale can't be the sole focus. You still have to sell your organization's products and/or services, hire talent, manage people and invest in growth. But no matter how difficult having a dual focus can be, you've got to take it on. Start by ensuring financial statements truly represent the state of your business and reflect good accounting practices. Then begin preparing your business to run without you. If your business doesn’t work unless you're involved in every aspect, you don’t have a sell-able business.
Step Outside to Step Back In: I recommend stepping back and looking at your business the way an outsider would. In other words, don't let ego and passion get in the way of an objective assessment and be ready to face the fact that your baby may be a little bit ugly. Also, look to the marketplace and analyze the business sales in your space. What are the terms and valuation of those deals? What are the attributes of the businesses that are being purchased? Evaluating how your financial metrics, product and/or service, business processes and management team stack up will shine a light on areas you need to develop.
It’s also a good idea to assemble a team of advisors who can help you through this type of transition. This might include a transition strategist, investment banker, attorney, as well as an accountant or wealth advisor. These experts have loads of experience helping companies through the entire sales process – from preparation all the way to signing on the dotted line. In short, if you want the best result, do not try to go it alone!
