So you’ve just made the decision to sell your business. That’s a huge step for someone like yourself that has poured their heart and soul into their company for years while growing it into a successful venture. Now there’s just one remaining question left in your head, a question that every founder in your shoes has asked before.
What steps do I take now to sell my business? (What do I do now?)*
Helping business owners answer this question is why Newgate Capital was founded 20 years ago. We specialize in helping you through every step of the process, from the initial ideation all the way to the final signatures closing the sale.
With this post, we are going to step you through the key categories that every business owner must not only thoroughly examine about their company but also polish up before they begin to see serious offers come their way.
Every one of these categories are areas where we work directly with our clients to help them get in order.
Internal Operations and Management Team
One of the most critical aspects of a business is how well its management team supports the day to day operations of the company. When a prospective buyer is gauging whether or not they would be willing to purchase your company a key piece of information that they are going to look at is if the Founder (you) leaves the day to day running of the business, will the business continue to operate effectively?
The ability to show that your business runs in a completely “hands-off” way is going to be a huge asset when it comes time to convincing potential acquirers that your company is an attractive offer.
Not only will this showcase that upon your exit of the company that it will continue to function and produce the same returns that it has been to date, but it will also show that there will be the ability for a much smoother transition period following the sale.
Anyone who buys your company would much prefer being able to keep the current team in place, avoiding the headache that would be having to restaff and retrain an entirely new management team.
If you can show that your business will operate with the same efficiency under new ownership as it has with you running the ship, then you will see an increase in value for the company, as well as a faster and smoother sale process.
Financial Statements and Accounting
Having 3-5 years of audited financial statements available as well as interim financial reports is going to be a requirement for any potential acquirers.
This information being available to potential buyers directly from the moment they ask for it is going to get you started off on a great foot. On the opposite end of the spectrum, if you are not able to provide this information to someone who is interested in purchasing your business, or the information that you provide is obviously, outdated, incomplete, or worse, completely tampered with, then you are going to irreparably damage the potential lead from that moment.
No matter how clean and audited your financial statements are there are always going to be questions and clarifying statements that must be made between the parties. Examples of common questions are the following:
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- How reliable are these projections?
- How reliant are these projections on just a small number of clients?
- Are your financial margins improving or getting worse?
- What are the key financial ratios that your line of business tracks? And how have those been performing over the last 3 years?
- Are the relationships that affect these ratios the most able to be taken over by a new team if needed?
- Do you have an accounting system in place, and how quickly can you generate reports about your business?
Among many others. At Newgate Capital, we have gone through this process countless times and are confident in our ability to prepare Founders for this process.
Only you know exactly how your business operates day to day, so being able to coherently and succinctly explain those operations and where they affect certain areas of your financial statements is going to be crucial. You need to make sure that not only your CFO/Treasurer can speak to this, but having the Founder being able to answer these questions will also go a long way in showing a buyer that you truly do know every aspect of your business, and will set their mind more at ease.
Business Valuation
Business valuation is one of the trickiest areas to deal with, especially if you have no one helping you along the way. Every business owner is going to want to get as much value for their company as they can when it comes time for a sale, and that is to be expected. Often a problem that is run into though, is that current founders have a much higher “dollar value” in their head when they personally start to value their company than what the company is actually worth.
This can cause two major problems.
1.The first problem occurs when it comes to down to negotiations with potential acquirers. On one hand, you want as much as you can get for your company, on the other the buyer wants to pay as little as they possibly can. This dance back and forth can be tricky, and it will become even more complicated if you come out of the gate with a valuation for your company that doesn’t resemble the actual reality of what it is worth.
Having an independent valuation of your business done by non-biased professionals before you get to this point can make the negotiation process go much smoother. This allows you to have a more realistic view of what your company is actually worth, and it also helps the potential buyer understand that the price that you are mentioning is based on impartial advice from a professional that does not have the same emotional connection to the business that the Founder does.
2. The second issue that arises is that if you are valuing your business at a level that is completely beyond what the current market is dictating for companies in your position, you will not receive any interest in a sale whatsoever. In the same way that putting your house on the market for more than others are worth in your area will lead to no one being interested in purchasing your home, the same will go for your business if you are not able to realistically set a price.
At Newgate Capital not only do we have experience in valuing companies across many different industries and verticals, we also have connections to other industry professionals that are able to give unbiased valuation advice, and this is always a crucial component of the work that we do with our clients.
Client Base
Clients are the lifeblood of your business. Potential buyers always want to know what the customer base looks like and how diversified it really is. No one wants to purchase a company that is based only on a single large relationship where the bottom line could be adversely affected due to damage occurring to that relationship. Having a broad mix of different sizes, and types of clients will help ease the mind of acquirers that the loss of a single client will not bring about the downfall of the business.
In addition to this, making sure that the staff that will be retained after the sale has strong relationships with your current client base is going to be a consideration at the top of a buyers’ mind. This goes hand in hand with what we discussed earlier about the management team of the company being a focus for buyers. Making sure that as soon as the company changes hand that client relationships and their business moving forward will stay intact is going to definitely be a focus for a buyer.
Here at Newgate Capital, we specialize in being able to find where in each of these categories your business excels, and working with you on figuring out the best ways in which we can highlight those categories to buyers. In addition, we are adept at identifying where your current business is lacking, and advising you on how to go about fixing those shortcomings before we put your business on the market.
At the end of the day the work that we do is always to help you figure out how to best position your company every step of the way leading up to the sale. Making sure you have the right information, as well as the right strategy, will help create an environment where your business transaction runs smoothly and you end up very profitable.
Are you considering selling your business? We can help.