Around the Web: A Week in Summary
A recent article posted by Divestopedia entitled “Avoiding the Biggest Deal Killer: Time” tells us that the key to a successful deal is preparation and momentum. This means that the seller should be fully ready when the business hits the marketplace, not when the first offer is made.
To keep the momentum going, there are 14 factors to consider:
- Know when it is a good time to sell your business
- Know why you want to sell
- Know the company’s strengths and weaknesses
- Know what you will do after you sell your business
- Know the value of your business
- Have a realistic asking price
- Be sure you are current on all taxes
- Make sure operational details are organized and recorded
- Know that the business can operate without you
- Know your company’s place in the market
- Be prepared with accurate financial statements, tax returns, and financial reports
- Know that your team of trusted advisors is ready
- Have a growth and marketing plan for your buyer
- Know what is most important to you so you can stay focused on the key issues and not worry too much over minor details
A recent article from the Sentinel Source entitled “How Does a Sole Proprietor Retire?” explains how a retiring as a sole proprietor is not as simple as giving notice at a job. It involves succession planning and transitioning.
There are 5 main steps you can take to start your succession planning:
- Decide if you want to stop working completely when you retire or do you want to move from full-time to part-time? Is there a partner or successor who will take over your business?
- Find a potential successor such as an apprentice, a colleague in your field, or use a broker to help you find a buyer.
- Depending on what your decision is, start planning the timeline. If you’re hiring an apprentice you’ll need to plan for a few years of extensive training. If you decide to close the business, start the process of notifying the state and shutting down your business accounts, which may take up to 6 months. If you’re selling the business outright, the process may be fairly quick, but be sure to get at least three quotes from business brokers.
- If you’re teaming up with a business partner or colleague, start having conversations with them about the future and how you will transition the business over to them.
- Be sure to inform and educate your clients or customers throughout the transition of your business.
A recent article posted on the Axial Forum entitled “What Do Buyers Look for in the Lower Middle Market?” explains how to make your business valuable to potential buyers and how to find the right buyers for your business. The buyers in the lower middle market are usually strategic buyers, financial buyers, private equity firms, and search fund advisors.
Buyers in this market are generally looking for the following characteristics:
- A strong management team who has incentive and is prevented from competing against the company if their employment is terminated
- Stability and predictability of revenue and cash flow
- Low customer concentration
- Other value drivers such as state-of-the-art operating systems
- High level of preparedness
The article warns about the biggest obstacles for owners. Business owners should consult with experienced deal attorneys and investment bankers before speaking to any buyers. They should also consult with advisors before the company goes on the market to make sure the business is properly prepared for sale. A business owner’s management team may also be subject to rigorous professional assessment and background checks if a private equity or financial buyer is interested.
Currently in the marketplace, buyers are offering amounts higher than the historical norms. This means that along with the higher sale prices, sellers are subject to more scrutiny through due diligence. This is all the more reason for a seller to be prepared and to work with experienced advisors to get their business ready for sale.