How do you sell your business at the best price?

There comes a time in any privately owned business owner's life when you start to think about selling your company. Selling well — at the best possible price — depends on understanding your reasons for selling, timing the process properly, knowing your value, engaging the right advisors and preparing thoroughly. For most owners, selling a business is a once-in-a-career event, which makes getting it right the first time essential.

Why do business owners decide to sell?

There are many, often personal reasons:
- Retirement — like many baby boomers, you have reached the horizon of your business career and want to enjoy the fruits of your work
- Partnership disputes — conflict undermines the enjoyment you once shared in growing the business
- Illness — of partners, family members or yourself, taking up increasing time and attention
- Competition — well-capitalized rivals are disrupting a once-predictable market
- Markets — the business faces sustained erosion of market position, margin and profits
- Risk — the reinvestment required (technology, infrastructure, talent) exceeds your personal financial risk profile
- Enthusiasm — the reasons you founded and grew the business no longer feel as important
- Heirs — your children are pursuing their own careers and have no interest in the family business
- Management — your team lacks the financial resources to buy the business
- Accident — in some cases owners or family are forced to sell after losing the founder
- Timing — holding on past the company's prime can make it hard to sell as a going concern, leaving orderly liquidation as the last resort

Why does timing matter when selling a business?

You cannot sell your business within weeks or months — it often takes many months or years to position and prepare for a sale at a great price. Start learning about the subject early, well in advance, to give yourself enough time to best position the qualitative attributes of your business.

When a business sells at the top of the range, buyers often want to pay more than just cash at closing, via:
1. An earnout based on the future performance of the business
2. Vendor financing — you lend a percentage of the price to the buyer, earning interest income
3. An equity roll — you roll a minority percentage of your ownership into the go-forward business for a second future upside
4. Continued employment — you remain an officer and/or board member with at- or above-market executive compensation
5. A substantial earn-out bonus during the transition to your eventual full exit
These elements require several years to fully transition out of your role as sole owner and operator.

How do you know what your business is worth?

To gain the best amount, these attributes are ideal: increasing profit margins year over year, consistent year-over-year sales growth, a loyal recurring customer base, and consistent improvements in financial efficiency ratios. Before selling, understand what your business might be worth today and set a realistic price range. An independent third-party valuation presents how strategic, financial and other buyers will value your business, aligns your expectations with market realities, and identifies areas for immediate attention that could improve a buyer's interest.

Should you engage expert advisors?

Yes. In addition to accounting, tax and legal advisors, M&A advisors who specialize in selling companies of your type, size and market area are always a good decision. They already know foreign, financial, strategic, family-office and high-net-worth buyers looking for specific companies, and know how to create demand with a global audience. What appears to be an opaque local market with few buyers changes dramatically when M&A experts are brought in. Their fees are a small fraction of the transaction value when the business sells at its top price.

What are the twelve steps of a professionally led sell-side process?

1. Compile a target list of potential buyers
2. Contact the targets through established relationships
3. Send the teaser — an executive overview on a no-names basis to pre-qualified buyers
4. Sign a confidentiality agreement with interested, pre-qualified parties
5. Send the confidential information memorandum (CIM) once the NDA is executed
6. Solicit an indication of interest (IOI) — a non-binding letter of ongoing interest
7. Conduct management meetings — a two-way exchange between buyer and seller
8. Ask for a letter of intent (LOI) — setting out price, terms and closing date
9. Conduct due diligence — the buyer's legal, accounting, commercial advisors, investors and lenders investigate
10. Write the purchase agreement
11. Close the deal — both parties sign, buyer pays, seller transfers the company
12. Handle post-closing adjustments and integration

Key facts: how to sell your business at the best price

Reasons to sell: retirement, partnership disputes, illness, competition, market erosion, risk, lost enthusiasm, no heirs, management without capital, accident, timing
Timing: positioning and preparation can take months or years
Top-of-range deals: often combine cash with earnouts, vendor financing, equity rolls, continued employment and transition bonuses
Value drivers: rising margins, sales growth, recurring customers, improving efficiency ratios
Valuation: get an independent third-party valuation before going to market
Advisors: M&A advisors plus accounting, tax and legal — fees are small relative to a top sale price
Process: a 12-step professionally led sell-side process from target list to post-closing integration

Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.