How Can I Maximize the Sale Price of My Business?
Originally posted on https://www.synergybb.com/how-can-i-maximize-the-sale-price-of-my-business/
When a Business Owner considers selling their company, one of the things they are concerned with is: How can I maximize the sale price of my company? There are a lot of factors that go into how much a business will sell for. Based on 17 years of selling companies, we provide you with some insights into how to sell your business for the best price.
REVIEW YOUR FINANCIAL INFORMATION
Before you know how much your business might sell for, it’s necessary to take a look at the financial picture of your company. You will need to review, at a minimum, the last three years of tax returns and a current year to date profit and loss statement of the business.
Most tax returns are completed to minimize taxes. So, in addition to the tax returns, buyers will want to understand the true owner’s income of the business. This is sometimes referred to as Seller’s Discretionary Cash Flow. In addition to profit and the owner’s salary, cash flow also includes the perks and benefits that the owner gets from the business: Things such as their company car, health insurance, and retirement plan. It also contains some discretionary expenses which may not be necessary for the business: Expenses such as optional travel and entertainment for the owner and country club memberships and other perks for the owner and their family.
A larger Cash Flow usually leads to a higher sale price for a business. So it’s important to identify all of the items that make up the owner’s discretionary cash flow.
STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS (SWOT)
You want to identify the strengths that make your business unique. Why do people do business with your company vs. your competitors? Would these strengths transfer to a new owner? Can a new owner build on these strengths and enhance them. Which types of potential buyers for your business might be able to leverage these strengths. Those that can are likely to pay more for your company.
It may seem strange to identify your weaknesses in order to maximize the sale price of your company; however, we’ll explain why. Let’s say you have the most exceptional product on the market; however, you lack the sales expertise to grow the business. A larger company that already has a sales team in place sees this as an opportunity to expand your business and may pay a premium to acquire your product and company.
Opportunities for your company to grow and be more profitable can either be strengths, weaknesses or maybe just things that you haven’t done. For example, perhaps you have a profitable business within a specific region of the company. A potential buyer may see an opportunity to grow the company on a national scale. This can increase the value of your business.
Perceived threats to your business can decrease the value of your business. So it’s essential to have answers for how your company can overcome any perceived threats. For example, if you own a limo company, buyers are naturally going to be concerned with Uber and Lyft. To increase the potential selling price, you will want to point out things such as your service level, client satisfaction, and long terms clients that don’t want to book online.
HIRE THE RIGHT BUSINESS BROKER OR M&A FIRM
Selling your Business may be the most important transaction of your life. To maximize the sale price, you want to hire a Business Brokerage or M&A Firm that has experience selling businesses in your industry. Their expertise will allow them to reach more buyers, position your business correctly, and speak the language of your industry. This will ultimately lead to more potential buyers, which is precisely what you want to have multiple bids to drive up the selling price of your business. You also want to hire a firm that only gets paid when your business is sold and receives a commission based on the selling price. This will align their goals with your goals to maximize your price.
PRICING THE BUSINESS PROPERLY
Pricing a business properly is an integral part of maximizing the sale price of a company. If you price it too low, you can leave money on the table. Our experience shows that if you price it too high, you get fewer people interested, and usually, the offers that come in are from buyers that give a low ball offer. The best strategy is usually to price it a little higher than you usually get for companies that are similar to yours. This allows you to leave some room for negotiation and you may end up getting the full price when you get enough buyers interested.
MARKETING THE BUSINESS CONFIDENTIALLY
In selling anything for a good price, you want to have a great marketing plan. With selling a business, you want to reach as many potential buyers as possible, but you want to keep the sale confidential. This way customers and employees don’t find out before the deal is done and get concerned or become a distraction. An experienced business broker is skilled at writing ads to bring in the right buyers and qualify them so that you focus on the best buyers who are most likely to give a good offer and have finances in place to close on the deal. A top business brokerage will advertise the business through many different avenues, including the internet, email marketing, and social media. They will also have a large network of contacts in your industry as well as related industries and private equity groups.
KEEP AN OPEN MIND ON POTENTIAL BUYERS
Sometimes the best offer may come from a buyer within your industry, and sometimes it may come from outside your sector. Of course, we want to make sure all potential buyers are financially qualified and have the necessary skills to run your business, but as long as you are willing to stay on after the sale, you can teach them or a manager that they hire how to run the business. That brings us to the next topic.
PROVIDING A TRANSITION AFTER THE SALE
To get top dollar for your company, you must offer a transition period to most buyers. Even if they already know the industry, they will want you to stay on to introduce them to the employees, customers, as well as teaching them the way that you do business. Transition periods vary greatly and depend on the needs of the buyer. As long as you are open to providing what the buyer needs, that is a benefit. After the transition period, the owner’s function in the business will need to be replaced, and someone will need to learn these functions in the company.
OWNER’S ROLE IN THE COMPANY
Ideally, the owner’s job function can be easily replaced. This makes not only the transition more manageable, but it mitigates the risk that someone taking over the seller’s role can do the job as well as the seller did. It’s good to have people within your company that can fill in for you when you are on vacation, and this also makes it easier when selling your business. In addition, having department managers is a plus, and hopefully, salespeople that manage relationships with customers. This will increase the value of your company when its time to sell. The more the owner is involved in the critical aspects of the business, the more extended the transition period that is typically needed.
The more open you are about the details of your business, the greater the confidence that potential buyers will have in terms of the success of your business going forward. Also, establishing good relationships with prospective buyers helps to increase the value of the offers that they provide. Every buyer wants to feel that they understand your business and can work well with you during a transition and continue to build on the success of the company after you are gone.
Communication is essential in every relationship. You want to communicate well with not only the potential buyers but also your advisors, such as your attorney, accountant, and Business Broker or M&A Advisor. This will establish trust and keep things moving forward to overcome any roadblocks to getting the maximum value for your company. You also want to have advisors that are good communicators and have experience in the process of selling a business.
Nothing gets people interested in something more than knowing that there are other people interested in what they want. Whether it’s buying a luxury item or a successful business. Your Business Broker will want to have a marketing plan to generate a number of potential buyers. They should also let potential buyers know that they are not the only ones interested in the business. This will provide buyers with a sense of urgency and move them along, knowing that if they don’t get the business other people will. Multiple offers provide leverage in negotiations and go a long way in maximizing the value of the sale of your company.
It’s important that your M&A advisor explains the offers so that you understand them. The offer with the highest price isn’t always the best offer. It’s also about the structure of the offer and the buyer. For example, how much will be paid at the closing and how much will be paid after the closing, if any. Are there any contingencies to the offer, such as the buyer obtaining financing. If so, how likely is the buyer to receive the funding? How much due diligence is requested. How long of a period will the buyer need to do due diligence? Are you comfortable with the buyer taking over your business?
Once you understand the offers, then you can decide which buyers to negotiate with and what is most important to you in terms of the overall price and/or amount at the closing. Having an experienced Business Broker negotiating on your behalf allows you to get the best price and terms for the sale of your business.
You want to complete Due Diligence as quickly and efficiently as possible. It’s essential to have an accountant that is accessible and available in providing all of the necessary documents and communicating effectively with the buyer’s accountant. An experienced Business Broker will also know what is typical in due diligence and negotiate any differences in the expectations and length of the due diligence.
You want to select an attorney to represent you that has experience in the sale of a business and has enough time to devote to getting the purchase and sale agreement negotiated with the buyer’s attorney. If there are any roadblocks, then a good business broker can often get both sides looking for a compromise to satisfy both parties.
SYNERGY BUSINESS BROKERS M&A
Synergy Business Brokers offers the best of a Business Brokerage and M&A Firm. We have over 17 years of experience selling businesses for the maximum price. We don’t charge an upfront fee and only get paid a percentage of the purchase price, so our goal is always to sell a business for the highest price. We do this by marketing the business aggressively to create the most potential buyers. Then communicating effectively with buyers and the seller to establish good relationships and transparency. This helps to develop multiple bidders and gives you the best opportunity to maximize your price when selling your business.
For a confidential consultation, please contact us at [email protected] or fill out our online form. We specialize in selling businesses with annual revenues of $700,000 to $40 Million in manufacturing, technology, construction, distribution, services, healthcare, engineering, and transportation.