Getting Ready for Selling Your Company
Getting Ready for Selling Your Company
Here are some things you can do to maximize your value and minimize your pain when you decide to sell. While you may not be ready today to sell your company, if selling is even in your long-term goals, now is the time to get ready.
1. Begin immediately by keeping your books clean, clear and reflective of your business.
* Don’t mix your background screening business with your PI business or your recruiting business. Keep the books separate and keep the expenses where they belong.
* Keep your personal expenses out of the business. Personal is personal. Business is business. If you choose not to do this, when it comes time to present your profitability to a prospective buyer, at least be able to precisely document the personal expenses. Buyers will accept some of these as “add backs” to the profit they would earn after the acquisition, but the bigger your bottom line is before the sale, the more you will get for your business.
* If you don’t have time to keep your books straight and always up to date, hire a bookkeeper (part time or full time). If you are trying to grow your business, you shouldn’t be spending much time doing your books anyway. Let them do the detail and you spend your time analyzing the numbers every month. Remember, you cannot manage what you do not measure, so monthly you should review your
ii. Balance Sheet
iii. Turnaround Time
iv. Unit sales
v. Profitability and Growth
* By Customer
* By Product
* Per Dollar spent on Sales and Marketing
* Per employee
2. Talk to your accountant to make sure you are structured to minimize your tax burden now and at the time of sale. If you are structured properly, you get to keep more. If you own your business and you are not an S-Corp or an LLC, you are probably not structured properly.
3. Work hard to diversify your customer base. If more than 10% of your sales are concentrated in one customer and more than 50% in your top 10 customers, you want to work to improve this. Buyers perceive concentration as a greater risk. If they lose one top customer doing 25% of the volume, 25% of the value of the company is gone. If your top customer is 5% of the total, the loss of this biggest client has an impact, but they still retain 95%.
4. To maximize your value, the stronger the staff you have, the more likely a “non-industry” buyer is willing you purchase you. In general, an industry buyer will be buying you for your book of business whereas a non-industry buyer will want your book of business AND they have a critical need (especially if you are leaving) for a strong staff of people to continue to run the company. Is it time to clean house of that marginal sales person and/or that marginal supervisor and replace them with someone stronger? Loyalty to your staff is a fine attribute, but you must do what is best for you and the business. If you don’t replace them now, the buyer probably will anyway, right after they finalize the acquisition.
5. Set goals. Write them down. Make an Action Plan. Review regularly to see if you are spending your time on those tasks that are easy and comfortable or those that will really help you reach your goals.
6. Consider your risk. Will the business be worth more or worth less next year vs. this year? How will you grow? What happens if the economy tanks? What happens if you lose your major customer? What happens if laws change that might hurt the business? What happens if you get sued? What is the impact if the Democrats take control of the legislature and the White House in 2006/2018? What if we have another serious terrorist attack that slams the economy? Talk to your advisors [attorney, spouse, accountant, consultant (me), etc.] to understand valuation and your option to sell.
7. If you get an offer from an interested party to purchase your business, don’t take the first offer without first finding out what the true market value may be. Consult your advisors to find out where the valuations are and if you are getting the best deal. You may be great at running your business, but marketing and selling your business is not your expertise.
8. Critically, selling your business means selling your “baby.” Before you invest your time and money in trying to sell, be 100% sure this is what you want to do. The separation can be quite traumatic. Think this through well in advance.