Posts tagged with: win first
“Attracting a buyer is like preparing for a beauty contest” – Gary Miller
Dog owners and breeders know that it takes years of discipline, training and preparation for their pure bred champion dog to stand out from the crowd and win the blue ribbon at the Westminster Kennel Club dog show. They know that the dog that ‘shows best’ will win ‘first’. They know the decision is in the judge’s hands.
To show best and win first in selling your business, it’s up to you to make your business both buyer ready and buyer attractive.
To Prepare Your Business, Think Like a Buyer
Before you enter the market place of potential buyers, preparation is essential not optional. Plan on at least 1-2 years of preparation efforts before you begin the 6-9 month transaction process. Yes, years. This preparation means all the difference in the value of your business and the price it will command in the market place.
Preparation is a choice far too few owners take seriously. Preparation makes your business stronger, more attractive and more valuable. Without preparation, you give (gift) all the leverage in a negotiation to the buyer and the buyer’s intermediary.
To think like a buyer, there are a few key steps that will make your business more attractive and appealing to potential buyers. They include:
- Getting a base-line valuation performed by an independent valuation firm to quantify the current market value of the business.
- Documenting all assets and inventory accurately. Dispose of any obsolete materials or expired inventory to get to a true accounting of what you have.
- Cleaning up all financial records to show current market value of assets and inventory now to avoid any issue for your buyer. If you wait until you have an interested buyer and they discover that your financial records show a higher value than market value at that late date, it will weaken your negotiating position or worse, put the deal itself at risk.
- Investing in an audit of your financials now, done by an independent accounting firm. This will give you time to clean up/correct any errors or concerns identified. It also establishes a pattern of good business management.
- Bringing all legal requirements and records up to date. Revisit all vendor and client contracts before you pursue any buyer opportunity.
- Implementing and document all systems and processes for operating your business. If you’ve never documented anything, you have no leverage to say what it’s worth. If the entire business is in your head, a buyer will not pay the full potential value of your business if they have to depend on you to achieve it. This step in itself adds value to the bottom line and drastically reduces business continuity risk.
- Deciding now who on your management team will be essential to the successful transition of the business to new ownership. Tell them your plans now and what you’ll do for them because they help you through the transaction process. Without them, your business is much less attractive to your buyer. You need them on board to champion the business when your potential buyer arrives to do their due diligence.
- Executing your own internal due diligence now to identify what is ready, what is not ready, where you are strong and where there are holes in what a buyer would expect to find in the due diligence process. With a timeline of years, you give yourself the luxury to methodically clean up, resolve and eliminate any potential red flag. The more complete, transparent and prepared you are, the less likely the buyer’s team are to dig for hidden problems.
Your All-Star Team of Advisors
To prepare you, your business, and your team to take your business to market, you need an all-star team of advisors, not just one or two. The most successful transactions close when you surround yourself with a cooperating, collaborating coordinated team of advisors to ensure your business is buyer ready and buyer attractive to achieve the outcome you want on your terms. In addition to your current business attorney and accountant, your core team must include at least:
- An exit strategist to manage the preparation of your business for you and orchestrate your transaction team; so you can stay focused on what you do best – accelerating growth and maximizing the value of your business.
- An attorney with significant transaction experience in the type of transaction you want to close. A divorce attorney or real estate attorney or a litigation attorney may not have the experience to give you the leverage to negotiate the best deal.
- Your Chief Financial Officer – even if you’ve never had a CFO on your team in the past. Even a part-time CFO will help position your business in the best light for a buyer.
- An investment banker with substantial transaction experience in your industry can be invaluable in negotiating the deal and moving the process to closure.
- A tax accountant experienced in major transactions who can evaluate and guide you to minimize the tax impact of the deal by preparing years in advance.
- A specialist wealth advisor to help establish your wealth preservation plan beyond the business, long before that plan will be funded by a successful sale to your buyer.
You need the entire team, not full-time, but all on board early and engaged to advise you through the preparation stage and right through the transaction to your ideal buyer.
Select the best advisors you can find, not the cheapest. The best, who deliver the most value, will pay for themselves many times over in the returns you receive.
Think like a buyer. When you and your team analyze your business through the eye of your ideal buyer, over time, you will add value and increase the leverage you can command in the deal. That’s how you attract the best buyers, “show best” and “win first”.