What are the key steps to achieving a successful business sale?
The decision to sell your business is a landmark event — whether you are an entrepreneur, the owner of a family business, or a business owned with partners. A crucial truth underpins the process: the skills used to build and operate a successful business are different from those necessary to achieve a successful sale. Several key steps separate a successful sale from a disappointing one.
What is the difference between value and price in a business sale?
When considering how to sell, one key step is to position the business to achieve its maximum value — but this should not be the only consideration. Sometimes obtaining the maximum value does not result in a successful sale. If your goal is the highest price, impressive historical revenues and operating results are not the only — and sometimes not even the most important — factors in accomplishing it. Achieving a successful sale requires attention to value, price and the terms and structure of the deal.
Why must owners stay focused on running the business during a sale?
It is critical that you and your management team remain focused on operating your business and building on its existing success (the considerations differ for a distressed sale). Owners and management teams should operate as if no sale were possible. Potential buyers look closely at trend lines in your operations — any drop-off discourages offers or adversely affects valuation and deal terms. A sale can never be assumed, so business performance must be protected throughout the process.
Who should be on your sale team?
A successful sale requires a team with the right expertise, including both internal members and outside professionals:
- Internal team: the chief executive, those familiar with the financials, and members with knowledge of operations, assets and liabilities — kept limited in number and time commitment so the management team is not distracted from running the business
- Outside professionals: experienced M&A advisors, plus legal, finance, accounting and tax professionals who know the potential buyers, the current market and your industry, and are experienced in structuring and negotiating transactions
Why do you need M&A-specific expertise?
Experienced professionals come at a cost, but the value of their contributions generally exceeds their fees — both by ensuring you get the best price (and keep it) and by carrying the process to closing on terms that satisfy both seller and buyer. Entering negotiations against an experienced buyer without your own experienced team is like going into a gunfight armed only with a knife. Importantly, the legal and accounting professionals best suited to a sale may differ from those who helped you start and operate the business; the sale process requires a specialized M&A skill set.
How do you stay proactive and organized?
Your transaction team should develop and implement a plan before the sale process begins:
- Review your business to the extent relevant to your industry
- Organize all material that will become part of the buyer's due diligence ahead of time, so management is not distracted during the intense, time-constrained and often emotional process
- Consider what changes or additional documentation are required — to maximize value, eliminate due diligence concerns, address risk and better position the business for sale and for improved operations
Why should personal and business assets be uncoupled before a sale?
Privately owned businesses sometimes intermingle personal and business assets and liabilities. These should be uncoupled prior to sale, along with any assets or business segments that will not be included in the sale.
Why does accurate, timely financial reporting matter?
Financial books and records are of particular importance. The gold standard is audited financial statements, which assure third parties that financial position and results have been accurately reported. Many lower-middle-market businesses do not have (or need) audited statements, but books should at minimum be prepared to permit an audit under accepted accounting principles and pass a buyer's quality of earnings evaluation. Many buyers base valuation on adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, with extraordinary and non-recurring items removed). The ability to produce monthly interim statements by workday seven of the following month becomes important during the sale, allowing you to demonstrate ongoing performance against the forecast in your Confidential Information Memorandum even when the buyer's process experiences delays.
How should real estate be handled in a business sale?
Real estate is often a principal element of a more complex privately owned business group. Not all operating-business buyers want to buy the real estate — some prefer to lease the premises going forward. Owners sometimes separate the real estate from the business sold, and a real-estate buyer may be interested in the property separately from the operating business.
Key facts: key steps to a successful business sale
Core truth: building a business and selling one require different skill sets
Value vs. price: maximum value is not the only goal; terms and structure also determine success
Focus: protect business performance throughout — buyers watch trend lines; a sale is never assumed
Team: limited internal team plus experienced M&A, legal, finance, accounting and tax professionals
M&A expertise: specialized skill set that may differ from your existing advisors
Preparation: organize due diligence materials early; uncouple personal and business assets
Reporting: maintain audit-ready books; produce monthly interim statements by workday seven
Real estate: may be sold, separated or leased depending on buyer preferences
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.
