The decision to sell your business is one of the most important choices you will make as a business owner. How do you know if or when you’re ready to sell? What should my business look like? There is a logical sequence to our perspective of readiness and attractiveness which runs counterintuitive to our peers. Selling too early will lead to disappointing surprises in due diligence, a lower valuation by prospective buyers, and the likelihood of not closing your sale. Selling too late means issues like illness, death, divorce or partner disputes have occurred not including the potential decline of your business. There is a myriad of questions about selling your life’s work and the answers require careful thought and consideration if you’re going to make a difference in solidifying the value of your business. Here is our logical sequence of questions on you’re readiness. You may not be ready to sell Your Business if you don’t know…
How much money do I need to maintain my current lifestyle after the business sells?
Knowing exactly how much you need from the sale tells you what the gap is between your current valuation and your desired sale price. If you don’t know exactly what you need and where you are, you’re not ready! If you do know, then here’s your second decision point. Do I focus on improving the value of the business or do I reduce our financial need to fill the gap? This answer guides you to the next step. What must I do to overcome the gap? If you decide to improve the value of your life’s work, then get it together with professional help.
What is my plan after selling the business?
Time. What will you do with the freedom of time? For many entrepreneurs, your identity is tightly woven to the business. Time invested in your life’s work slowly grabs your sense of purpose, self-worth and self-actualization. People talk about work-life balance and not having an equilibrium between personal and professional is dangerous to your mental, physical and emotional health. What will you do afterwards that resonates with your personal purpose, value and sense of self? What’s your plan to ensure the business sells enabling your peace of mind?
What do the current financials tell me about the value of my business?
Inaccuracies in financial statements are red flags to potential buyers. Working out of a cigar box is fine if your financial documents are in order. If you’re working out of a system such as NetSuite, Sage, SAP or even QuickBooks, how clean, accurate and disciplined is the system? The information you must have to guide your current and future decision making, thus success is only as good as the data going into it. A buyer will spend ungodly hours digging through your financials to validate how your business fits into their models to realize the rate of return for their investors. Their diligence is to prove or disprove you have operating disciplines, quality controls of data, and the data is accurate. Why would you wait for bad news or allow your back office to be in disarray? Part of the assessment step at JSP is to ensure you’re on the right path for preparation, a roadmap to a successful sale. If you know you’re clean, then optimizing your strength and value is your assessment takeaway. How do you objectively know if you’re clean?
Who is capable and willing to run my business now?
Buyers are interested in your business because it operates without you. It doesn’t? Then, you have a problem. Take you out of the business and the business fails. All the information necessary to run your business is in your head. Your life’s work lacks a process – the process steps, automation, leadership and communication to successfully operate without you. Maybe you have some things captured, but not most or all of it. Lacking a skilled operator or management team will cost you millions of dollars. Here’s decision number four: Do I invest the time with my people to get organized capturing process? Operational processes and succession planning and development operate concurrently. You can’t have one without the other. Having a partner come alongside and offer insight, feedback and a roadmap ensures your life’s work sells for top dollar providing the freedom you said you must have.
Have I considered the value of the business from a buyer’s POV?
If you have not considered how an outsider will value your business, now’s the time to step back and do so. Take a high-level look at your business just as a football coach views his team during a bye week – self scout, give younger players more reps, identify and evaluate what’s working and what’s not. Now go out and plan for gameweek! Fresh eyes allow you to address any issues and make necessary adjustments which improve your business. Have you considered bringing on an advisor to share your vision for selling your life’s work “at some point?”
Who will I hire to help sell my life’s work?
Hiring the right team of professionals is no different that a general manager selecting the right draft choices for his football team. Not having the right team will cost you millions of dollars. The statement is not self-serving as the facts of business are facts don’t lie. You’ll need a wealth advisor to guide you with your newly acquired wealth post sale and advise you in preparation for that waterfall. You’ll need an M&A attorney to ensure the deal structure, and all the elements are favorable to you post sale. You’ll need a financial advisor or greater depending on the accuracy of your financials. You’ll need an M&A advisor who quarterbacks the process from pre-sale, during and post-sale, ensuring your case effectively and efficiently closes your sale. Regardless who you decide to hire, experienced advisors will tell you the same information from their perspective of what you must do and must avoid leading up to and during a sale.
How do I ensure I’m ready to sell my business?
Before placing your business in market, your business must be seen as attractive and prepared to sell. Just like building a house, the foundation is most important to ensure the building envelope is built properly and sustainably. All everyone sees when a house is on the market are the exterior and interior finishes and stylings. You can put lipstick on a pig, but it’s still a pig. It’s that what you think of your business? Preparing your own due diligence is that next step is viewing your business from a buyer’s perspective. Sure, once you’ve accepted an offer the buyer will do their own due diligence. Do you really want to leave that attestation up to chance? They’re professional buyers. They’re going to offer what delivers the best return for their investors. Why wouldn’t you resolve all the problems your business has beforehand, costing your millions? If the first time you learn about problems is when the buyer discovers them, you’ve lost any advantage in negotiating price; worse yet, the deal may fall apart altogether.
At JSP, we consistently deliver the message of ‘no where to hide’ regarding a business case. It doesn’t help anyone to smoke it by you, to take advantage of a bad situation or to manipulate people to get what you want. Some don’t like our delivery and that’s fine. The hard truth is just that – hard. There’s over 30 million of you who don’t, won’t or can’t see what’s right in front of you. For others, it’s about the rhythm of ego, results and relationships. Can you submit your ego to achieve generational wealth for you, your family and your employees? Can you really believe someone else has your back to provide that generational wealth for you, your family and your employees? Will you?
…the conversation continues…