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The Keys to a Successful Business Sale

By Generational Equity

05/30/2017

We often meet business owners at our executive exit planning conferences who pull our managing directors aside during breaks and lament the fact that they are attending our meeting AFTER unsuccessfully trying to find buyers for their businesses. They often say, “I really wish I had attended this conference BEFORE attempting to close a deal without knowing what the heck I was doing.”

More often than not, as we console them and attempt to see if we can help salvage a potentially thorny post-marketing situation, it becomes obvious that there are common reasons why privately held businesses do not find buyers.

In addition to making the mistake of not using professional representation (i.e., an M&A advisory firm like the Generational Equity), we have found that there are core reasons that need to be addressed before a second attempt is made.

According to the analysts with Axial (a network connecting business owners with capital providers), these common issues include:

  • Your business is disproportionately dependent on a customer, employee, or supplier (or in some cases, all three).
  • You don’t have a plan for growth. Buyers look for companies with a foreseeable path for growth.
  • Your company is strapped for cash flow. In general, the more cash you generate in excess of your working capital requirements, the more your company will be worth.
  • You don’t have recurring revenue. For companies with subscription-based revenue models, buyers have been known to pay lofty premiums for the advantage of being able to lock in predictable future revenue.
  • You are in a commoditized business. Often, the less differentiated your business is, the less attractive it will be to a buyer (however, this is not true if the buyer is from your industry and understands that this is the norm and may want access to your accounts).
  • The business can’t succeed without you.

Although all of these can affect not only a deal closing but also the valuation of the company and the structure of the transaction, the most critical factor is probably the last one. And the fantastic news is that out of all of these, it is probably the easiest to address and overcome.

All you need to do is proactively hire, mentor, and develop a middle-management team. And after doing so, delegate, delegate and delegate – until it hurts. Make yourself so unnecessary that you can take days off or even weeks away. Not only will this be good for your business and give buyers confidence in the longevity of the company post-sale, it might also improve your family life and give you time to develop a few hobbies, which are all positive results of taking an active stance on succession planning.

Certainly for the sake of space, and your time, I have kept this brief. In reality, delving into the “fixes” of a successful business sale are more complex than can ever be covered in a single blog post.

That is why we conduct exit planning conferences for business owners throughout North America on a regular basis. Although these require a few hours of your time (but are complimentary), our attendees tell us that they are the most productive business meetings they have ever attended. If you own a business and are contemplating an exit event in the next 3, 5 or even 10 years, you owe it to yourself, your family, and your company legacy to attend and learn how you can exit with the maximum profit possible. Here are some links to find out more:

If, after looking at these links, you are interested in learning more, please feel free to give me a call at 972-232-1125 or email me at cdoerksen@generational.com and I will put you in touch with my teammates that can answer any questions that I can’t.

And please, if you do decide to find a buyer on your own without professional help, address these issues listed above in advance so that you can not only close a deal, but also find a buyer that is optimal for your company.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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