Over the years, I have been fortunate to have been the founder or part of the management team for five entrepreneurial companies. Having gone through several M&A transactions, it wasn’t until the last one that we experienced what it meant to have a successful exit. That was the genesis of Destined.
The truth is every business will not be run by its current owner at some point in the future. You can be either be proactive in determining the time and circumstances, or leave it to chance, often with less than desirable results for you.
There are a couple of essential elements to devising an exit from your business.
Before I detail the essential elements, let me provide some context. It is a myth that ostriches stick their heads in the sand when they sense adversity. The truth is that they use their long necks and very large eyes to spot predators early, and then either lay down to hide (if they’ve not been spotted), or run away at speeds of over 45 mph. Like the ostrich, we counsel business owners to look far ahead to see the approaching exit, with plenty of time to make the best of it. Those ostriches that do will survive for tomorrow. Those business owners that do will get the attention of the best buyers who pay the highest prices. Surveys have shown greater than 75% of firms have done little, if any, succession planning. Your goal is to stand apart from the crowd and have a plumped up, gorgeous, juicy business brimming with profit and growth, drawing several great buyers bidding against each other as they vie for the chance to write you a big check.
Once understand, the next question I get from business owners is, “What can I do about it?” First, determine if the company is ready to be sold. Preparing a business for sale is all about telling a compelling story that will hold up through due diligence.
The Compelling Story
One of the things that makes Destined better than many of our competitors is that we make your business stand out in the marketplace. Consider that any buyer is considering other alternatives regarding how they invest their cash. Buyers could acquire a competitor if they have a stronger business or something else the buyer seeks like marquis customers or standout products or services. There are five key components to a compelling story, and the high price that compelling stories bring:
- Good Growth Prospects
- Unique Products or Services with Operational Strengths
- Proven Trends & Profitability
- Good Management Team and High Employee Retention
- Repeat Customers with Low Concentration
Sit down and write a paragraph for each of the five points that you feel would prove your case. If you can’t honestly do that, you’ve got work to do. Get started!
Easy Due Diligence
The process of having a buyer dig through every aspect of your business can feel uncomfortable, and I must admit, about as much fun as a visit to the proctologist. However, there are many ways to make this easier and more enjoyable (though never as much fun as a night out with friends).
The key to getting the entire transaction to a successful conclusion without renegotiating the price and terms is to perform due diligence on yourself before taking the company to market. We want to uncover anything that may be perceived as a “negative surprise”. We take you through a detailed Due Diligence list, but broadly, you should:
- Examine Your Financial Records & Controls
- Review External and Internal Agreements
- Document Policies and Processes
- Mitigate Employee, Litigation or Environmental Issues
- Comply with Applicable Government and Industry Regulations
Thinking of selling within the next five years? Begin the planning process now. It leads to a higher valuation, makes the process easier and allows you to sell the company when you and your business are ready. We’d appreciate talking about your situation, reviewing your options and guiding you as you prepare to transition your business to a new owner.