When we talk to business owners about helping them to sell, they expect us to find a buyer who will pay top-dollar for their company. This is certainly possible, but almost every business has value-reducing issues. Left unresolved, these issues can make your business unsellable. For example, a company with declining sales and high customer concentration will sell for much less than its peers who don’t have those problems. If the sales decline is steep, buyers will worry it’s irreversible.
The following are 10 steps you can take to ensure your business is in the best possible position when you go to sell:
1. Have at least 2 years of sales growth. It’s OK to have a dip in sales in the past. If things have been going up in the last 2 years, the dip can be minimized. If you are in the midst of a decline, convincing buyers this trend can be reversed will be tough.
2. Strengthen your management team (make yourself irrelevant). Buyers worry when everything revolves around the owner. If you leave, will sales fall and employees quit? Build a solid group that can successfully carry on after you leave.
3. Have a plan to grow sales for the next 2 years. Buyers like to see that you have a forward vision and concrete plans to execute on it. This shows your confidence in the future of your business.
4. Create barriers to entry. If you can have clear competitive advantages, it will pique the interest of strategic buyers. Strategic buyers will “pay up” for your business if the competitive advantages can be leveraged post-acquisition.
5. Increase margins above industry averages. Buyers will weigh your performance against the industry. They prefer to acquire companies that outperform their peers.
6. Reduce customer concentration. What would happen to your business if your biggest customer left? Would you still be profitable? Buyers are reluctant to take on customer concentration risk. Ideally, no single customer should account for more than 20% of revenues.
7. Focus on recurring revenues. Steady, predictable revenues are preferred by buyers versus large contracts that will come to an end.
8. Have your financials prepared by a CPA firm. All buyers want to see reliable financials when evaluating your business. We recommended 2 years of reviewed (or audited) financials at a minimum.
9. Be realistic in your valuation expectations. When we present a seller, one of the first things buyers ask us is, “What’s the price expectation?” If the price is too high, they won’t take the next step.
10. Assemble a team of experienced professionals to lead you to a close. Professionals such as M&A advisors, CPAs and attorneys will help you to prepare your business for sale and push things to a close. Owners who try to do everything independently often fail to sell their business.
About the Author
John Norton is a Managing Director at ACT Capital Advisors and leads the Company’s Technology Practice. In addition, John has closed deals in non-tech areas such as Manufacturing. He has 25 years of experience in growing and operating his own businesses that had successful exits.
John can be reached at jnorton@actcapitaladvisors.com.