What you need to know before selling your business

Peter Holton, managing director of Caber Hill Advisors, Chicago, shares the following insights regarding what you should know before selling your business.

Roofing business owners put blood, sweat and tears into building their businesses. But at some point, it’s time for the next chapter of life to begin.

Have you thought about your exit plan? To maximize the value of your business in a sale, it is important to understand what I call the “5Ks.”

• Know what your business is worth. Typically, the largest asset owned by a business owner is their business. Many people ask me: “How much is my business worth?” “What multiple should I sell my business at?” Each business is unique, and there is no simple formula or quick answer. The only way to know what your business is worth is to invest the resources into a comprehensive business valuation that will analyze your business internally and compare it to similar businesses that have recently been sold.
• Know what motivates buyers. There are three primary types of buyers: large companies, private equity groups and private individuals—and each has their own strategic objectives and a unique perception of value. It is vital to know how to present your business in a way that will align with a buyer’s motivation so you can negotiate a better deal.
• Know when to sell. If your business is thriving, you should sell now to maximize its value. When selling your business, you should consider personal timing, company timing and market timing. Although it seems natural to base your decision on personal timing—such as when you want to retire—personal timing is the least important factor. Buyers do not care that you want to retire; they care if your business is growing. And the market won’t be hot just because you want to sell; you can choose to sell when the market timing is right.
• Know the difference between price and terms. Although all business owners want to sell their company for maximum value, too many owners only focus on the deal price without properly considering the deal terms, which can lead to disappointing results. Consider two offers for the same business:
  
  
  • Offer A: $5 million paid all in cash at closing
  • Offer B: $5.5 million paid out over 10 years
  Without understanding the terms, there appears to be a significant gap between the two; however, depending on how the $5.5 million deal is structured, the seller may not collect the full $1.5 million and may end up worse than if they had accepted the “lower” offer. There are many ways to structure a deal for both parties. The more flexible you are as a seller, the more likely you will reach a positive outcome.
• Know how to manage the deal process. It is crucial to know and understand the steps in the deal process. Every deal is different, but on average, it takes roughly 6 to 12 months to sell a business. There are four keys to the deal process: preparation, marketing, deal structuring and closing. If the preparation is done correctly, all other portions of the deal process will flow smoothly.

Date : Jan. 01, 0001