There are some best practices in selling your business. Making sure you apply these best practices to have a more smooth, efficient and successful sales process.
- Know the price of your business. Before starting the sales process be sure you have an indicative range of the value of your business. Look at similar acquisitions done in your sector to get a sense of the price. Consult with an external advisor if uncertain. Know the objective of the sale, if the objective is to obtain financing for expansion or investment in new equipment first check if another funding option is not better.
- Hire the right advisors. On minimum engage a lawyer and involve them from the beginning of the process. Prepare deal-ready financials, such as a Fact Book or Databook. If your business is large enough consider hiring a broker (M&A advisor) and a transaction specialist to prepare these kind of financial sell side reports and assess your underlying recurring profitability. The advisors you hire should have adequate transaction experience and be knowledgeable about the sector your business is active in.
- Start early. The sale of a business is a long-term process. Make sure you start making your business ready around two years before the actual sale.
- Know your business. Know what are the value drivers of your business. Also, prepare a SWOT-matrix and link this to a realistic business plan, which underpins the underlying value story of your business. Make sure that the budgets coming out of the business plan are challenging but realistic. Not realizing the budget during a current trading update has significant negative impact on the value of your business.
- Involve your key employees. The sale of your business and the related due diligence process is extensive. You will not be able to manage all demands and questions from potential Buyers alone. Involve the key employees from your business, being the Finance Manager or CFO, the Commercial Director and the Operational Director. Keep the transaction confidential and do not inform all employees in your company. The unrest will have a significant negative impact.
- Keep running business as usual. There is always the risk that the sale falls through. In that case you need to continue with your business and try again in a couple of years. Also, a current trading update is a part of every due diligence. Make sure that your business keeps on growing during that period. Even while you are busy with the sale process itself.
- Be prepared! Be prepared emotionally to sell your business, ensure you have proper follow up in place and your business is not dependent on you. Take sufficient time to prepare good information and documentation of your business in a virtual data room. Know how a purchase price is calculated and which factors can impact the price during the due diligence phase.
Find more on:
- Adjusted EBITDA and EV to equity value bridge
- Free M&A Excel templates for download
- Normal level of net working capital at Closing
- Locked box versus completion accounts
- Choosing and preparing a virtual data room