Planning Ahead For Your Eventual Sale
In this article from our Spring 2008 Quarterly Newsletter, ASG Managing Partner Mike Grubb outlines the four most important questions we ask our clients to contemplate in the years before a sale.
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Principals at ASG Partners often speak to potential clients once or twice a year for several years before they begin the selling process in earnest. Whether you are planning to sell in three months or three years, reflecting on these four fundamental questions bring important issues to the fore, and addressing them will increase the value of any company:
What is my company's long-term vision?
When the time comes to sell, interested buyers will examine a company's operation not just for proof of a profitable history, but also for compelling evidence of a promising future. Because business owners wear so many hats each day, they sometimes forget to allocate time to strategic planning and budgeting exercises. Successful would-be sellers should formulate a vision of what their business might look like in three to five years. Consider your company's unique strengths, what differentiates its products or services from competitors' offerings, and where new competition might come from in the future.
Well-defined and focused companies identify and stay on the path to long-term success.
What would happen if I didn't come to work for a month?
Owners who have built their companies from the ground up are often deeply involved in day-to-day operations. While that may be the most efficient approach in the short term, it can reduce value in a sale, since buyers need to be convinced that the company's success can continue when the founder/owner departs.
So when you start planning a company sale, it's time to begin planning your own eventual departure as well. Assembling a team that will be capable of successfully running the company after the transaction is essential. A complete team of tenured employees will boost the value of a company, and owners who steadily reduce their involvement in day-to-day activities are better prepared personally for the day they finally step aside.
What will my operating metrics tell buyers?
Analyzing finances and other important operating metrics will yield crucial insights about any business. Owners who are not already maintaining accurate books based on accrual accounting should make the effort to get their houses in order, spend some time perusing their sales figures and operating expenses, and consider engaging a CPA to prepare year-end financial statements.
Gross and net profits are top priorities for buyers, but digging deeper into the numbers may reveal strengths and risks that can affect the selling price of a company. For example, predictable, recurring revenue streams show stability, while single products or large customers that contribute disproportionately to sales or profits may imply risk.
Sellers who adopt a buyer's perspective will identify issues that may prove challenging for their successors. Addressing these issues prior to a sale can add significant value.
What kind of help will I need when I'm ready to sell?
Most company owners assemble a team of trusted professionals when the time comes to sell. Accountants and attorneys play key roles, and their expertise is invaluable in reducing risks and consummating successful transactions.
Sellers may also benefit from the assistance of an experienced intermediary or merger and acquisition firm. Such advisers can significantly increase a company's value by confidentially engaging multiple prospective buyers in a carefully coordinated process that allows the owner to remain focused on running the company.
It is never too early to start planning the sale of your business. Addressing these questions now will help make your company more profitable and stable in the short term, and will also ensure that you get the maximum value out of your life’s work when you cash in and move on to your next adventure.
If you are considering selling your business in the future, we invite you to call an ASG Principal for a confidential, no-obligation discussion about the steps you can take to increase the value of your company. Email or call us at 425-450-4800.
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