Successfully selling your middle-market company requires tenacity, gumption and often a great deal of hands-on expertise.
For those looking to jump into selling their company, I’ve compiled a brief, but hopefully helpful list on “don’ts” for selling and marketing your business when it comes time to take it to market.
Lately the concern has been “will my business sell at all?”
In fact, many have discontinued their intentions to put their business on the market, while others site with a vacant “For Sale” sign on theirs, just hoping for a buyer—any buyer—to come along and sweep them off their feet. The pointers below are not meant to be extensive, but should be a bit helpful on getting your business to sell for the largest sum possible.
Start talking price from the outset
I know we’ve rehashed this one ad nauseam, but for good reason. Not being the first to show your cards is important when you are attempting to keep the power in the buyer/seller relationship. Just for your information, it is the seller who should always keep this power. For more information on this please visit our specific post on not mentioning price when selling your business.
Inaccurate or incomplete information
If the data in your Confidential Business Review (CBR) is inaccurate, it could be the start of your demise. If the expectations of the buyer is based on incomplete or inaccurate information it will not bode well for you when it comes time to get to the final rounds of the negotiations. Believe me, working on
Sharing of confidential information
If you have not already secured a hermetic Confidentiality Agreement (CA) from the intending buyer, be sure to get an experienced M&A attorney on your side to get this done quickly. If you do not have this document in place, a violation of it could cause not only the loss of the particular violator, but any other potential buyers down the road who have now seen your dirty laundry strewn about. Getting a CA put together out the outset can protect you from a great number of “woahs” down the road.
Lack of understanding
Business owners know their business holds value, but we see countless company owners and managers time after time, undervaluing (many times because of a lack of understanding) some of the key assets of their enterprise. This lack of understanding may not be the demise of the sale itself, but will certainly put the seller in a place where he/she will not be able to maximize the sales price for the company. This is a lose/lose for the seller.
Improper networks and marketing prowess
Marketing prowess in the sale of a business as it is in the sale of any other product or service one may be taking to market. This includes the ability to take the business and pitch it to potential buyers, which could include Private Equity Groups (PEGs), individual sellers or publicly-traded companies. Obtaining top dollar for your business often means finding buyers in potentially obscure places. A good advisor can be helpful here. Such an advisor generally has a network built which can be helpful in getting the business sold. Remember though, today’s technology is helpful in getting businesses sold. The internet’s reach has really helped out on this one, but a lack of understanding there can also be painful.
Preparing to sell can be difficult, further exacerbating the issue can be very easy if you fail to adhere to at least some of the aforementioned “doctrines” of selling your business. Or perhaps they should be counted as ways NOT to sell your company. While we don’t suggest going it alone, I hope this small bit of advice will be helpful if you are looking to sell your business anytime in the near future. That future is looking much better by the way, especially as the market begins to gather steam again.
Fight the Temptation to Oversell
Selling your company can be an exciting time for an entrepreneur. It is fraught with a mix of emotion and struggle. Often because the business has been such an integral part of the entrepreneur’s life it makes it difficult for the small business owner to part with the assets he/she has worked so hard to acquire. A large part of being an entrepreneur is striking some semblance of work/life balance between the business and family. Balance is also a needed attribute when it comes time for the entrepreneur to sell the company. Balance particularly needs to be struck in the “selling” process. There is a temptation to oversell the business which is problematic for a number of reasons.
First, painting a rosier picture than reality could come back to bite you in the butt at some future point. For instance, if you tell the client one thing and the opposite happens you are certainly not building a healthy foundation of trust. There are so many nuances and issues involved in each company and industry that is important to divulge much of what is involved in your business. Certainly it is okay to leave out specific issues or customers that were one-time events, but being forthcoming will have payouts in other ways as well. For instance, what if your buyer is someone within the industry—perhaps your competition—and you are now courting him/her for a the sale of your company. With all the proper confidentially agreements in place, it is okay to open up a bit. Talk about how business has been performing for both companies and otherwise open up about problems specific to each business and perhaps the industry as a whole.
Secondly, your moral character is on the line. Being ethical is probably one of the most compelling reasons to be forthcoming on information about your business prior to a sale. For instance, if there is a regular and recurring issue or customer or problem that you avoid bringing up because you know it would shine a bad light on the company, thus reducing the chances of a higher sales price or a sale at all, most would be tempted to simply ignore it. Some would do something even worse when confronted about it: they would lie. Not a smart move. This is not a post on ethics, but it very well could be. It is sufficient to note that being ethical is as important for your future and the eventual closing price as it is for your reputation and character.
A final thought. While you should not paint too picturesque a scene for the next potential owner, it is okay to leave out quite a number of details incident to your business and some of its operations. In fact, many a transaction would have failed to complete had there been full disclosure of every and all details. You don’t have to be so specific and nit-picky on every detail involved in the business and its assets and operations, just be sure your moral compass can handle the divulging or withholding of specific details incident and important to the final sale. If you can sleep at night and look at your face in the mirror in the morning, than you are probably doing fine.
If you were looking to build value and build a lasting enterprise when you began, then you were probably in your business and your particular industry for the right reasons. Until it comes time for you to sell and walk away, it may be wise to start thinking about these types of issues now. In your operations, what can be trimmed, eliminated or improved so that the sale of your business does not leave any “excess baggage” there for potential buyers? Start taking the Japanese Kanban approach now and get your company working like a well-oiled machine so you can be prepared to sell when the time is “just right.”