BREAKING: Anywhere, USA. Why do you say I’m not ready? You’re assuming any buyer will see what you see – the sweat equity, the long hours, the sacrifice, the years of growth. C’mon you know better! Their hope is there’s enough of a foundation in what your business offers that by bringing in professional management and institutionalized process disciplines in 4-5 years they will grow revenue 8-10X and EBITDA by at least that much. What we’ve found over the last twenty years is too many buyers have lost their “give a shit.”
“If you’re not ready for everything, you’re not ready for anything” — Paul Auster
The Common Reasons You’re Not Ready
Buyers see your business far differently than you, because they do this day-in, day-out for high-net-worth individuals, pension funds, et al. A typical LMM shop will have a fund over $500MM, look at 200 teasers, request 30 pitchbooks, sign 4 LOIs and if you don’t fuck it up close one deal – that’s a typical quarter for a financial buyer. What they see is risk until proven otherwise. What they want is a free-cash producing asset, systems and structures and future profit. They are analyzing your opportunity based on past performance inserted into a financial model that generates +30 IRR for their investors. They BUY your opportunity based on future profit under their governance. THAT’s why we say you’re not ready.
Selling a business is a major financial event, but it is also a significant life transition. Most owners have spent years, if not decades, building their business, and it has become a part of their identity. So, it is surprising that they don’t often consider the role they will play, if any, with the company moving forward. Nor do they consider what’s next. What lies beyond the day after the sale? These might seem like afterthoughts, but they are not. They must be considered upfront so that expectations with the buyer are clearly communicated and there is no tension or dissatisfaction on either end. Here’s five commons reasons:
Unrealistic Valuation Expectations. Many owners believe price is based on some emotional attachment or obsolete comparisons, like CCV – the Country Club Valuation – rather than market realities. The arrogance and ignorance lead to overpricing. Having an ill-prepared and unattractive opportunity makes it difficult to attract any serious buyers. Would you pay for something overweight and unattractive? Your business is worth what someone will pay for it.
Emotional Attachment. Owners often have a personal connection to their business, which clouds rational judgment. Yes, you’re the job; it’s your identity! This emotional investment prevents objective decision making about the sale. If you believe that ‘in the hands of the right person, this business could easily double’, then why haven’t you done it? Who knows the business better than you?
Lack of Financial Organization. Inadequate financial documentation can create issues before due diligence even begins. Buyers expect clear, accurate financial statements backed up by clear, accurate financial reporting, backed up by clear, accurate financial operating disciplines to assess the business’s true value. Don’t have that? Subtract hundreds of thousands up to millions of dollars.
Inadequate Readiness. Businesses that rely heavily on the owner or lack documented processes are risky to buyers. A disciplined, well-structured operation is essential for demonstrating stability and scalability. Confusing the selling process with selling a product is another disconnect. Many owners underestimate the complexities involved in selling a business. They don’t realize the importance of preparing well in advance, often taking 24 -36 months. Even if you haven’t been asleep at the wheel since COVID, there’s processes you take for granted because you’re still the one in charge. Buyers want a business that can operate without you. Can yours? Then you need that much time to build to exit.
Inadequate Guidance. Relying on advice from your C12, Vistage group or the country club will only feed your ego – that’s biased decision making, sorry. Engaging qualified M&A advisors provide objective insights and improve the chances of a successful sale. Understanding the common pitfalls helps owners better understand what it takes to consider preparing their businesses for a successful sale in private M&A transactions. For 95% of you, your business is the single greatest asset you have. By addressing these issues early, they can enhance their chances of achieving a favorable outcome.
If you wait too long to involve your legal and financial advisors, you may have already lost your leverage. You cannot wait until you have received an unsolicited offer. Involving advisors early in the process is the key to success and to avoiding the mistakes we have discussed. Reach out to your advisors at least 36 months before considering a sale so you can address any issues and get on the right track of preparedness. By engaging experts early on, you are shortening diligence timelines and strengthening your negotiating position. Valuations are significantly eroded by avoidable preparation failures. Prepare your business, and yourself, for the outcome you want.
“Employees want Clarity, Buyers want Continuity.” – Doug Huertas
How would you feel as that young employee when looking at the 60- or 70-something coming in to work daily. Hell, they’re just hoping you don’t keel over and die. When key employees feel uncertainty whether or not they will have a job in 6 months or next year, they are unprotected. That uncertainty casts a negative cloud on your preparedness. Be a leader, share with them what the end game is. They’re adults, be honest! Employees want clarity, and buyers are looking for continuity. That means you must plan and communicate regularly and effectively. Retention plans, bonuses tied to the transaction, or equity offers are all incentives that can help preserve stability during and after the close.
What Race Are You Running
How much time do you have? Time is the greatest commodity and if you’re not using it wisely, the end result may not be what you expect. Hopefully, we’ve answered a few readiness questions. The biggest question for you is WILL YOU? Can you is about having the capability and capacity to lace’em up one more time. Will you is about willingness or has the “give a shit” left the building?
Grandpa told me to never rush the crops, but some of you never listened to him either. If you want to be in market at the beginning of the year, there is no time to rebuild every value driver. The work you must perform is triage: find the fastest, highest-impact moves and execute them. We start with a business valuation to establish the lay of the land and a realistic price expectation. We can provide a base valuation during an assessment to pinpoint where value is strong and where it is leaking. From there we sit down with you and prioritize the low-hanging fruit, the handful of fixes that can realistically move the number before the data room opens.
If we don’t have to cram for the exam – you have a 24-36 month runway – then doing far more than tidying up is on. You control the involvement where we can guide and support you through it while you do the necessary work or we take a DIFM approach where we’re leading and implementing under your governance. Our Exit Accelerator approach leverages our Growth to Exit matrix moving through three gates:
Discover: assess current value, personal goals and exit objectives.
Execute: value-driver and risk minimizer initiatives.
Decide: every quarter you decide to press-on or it’s time to go to market.
We value the business, identify the specific value drivers holding it back, and then work with you over a 18- to 36-month horizon to systematically address deficiencies. Owners who give themselves the runway tend to command stronger offers and exit on their own terms, instead of scrambling to clean things up once a buyer is already at the door.
