“You should be as certain as possible that a sale to a third party is the only way to go. In other words, the sale must transfer your business when you want, for the money you need, to the person you choose,” - John H. Brown, book “Exit Planning: The Definitive Guide” and founder of BEI, a national exit support firm.
In Planning Your Exit Part 2, the focus for exiting your business was on the Transfer of Ownership to Family Member and Sell to Key Employee or Employees. This article will concentrate on the Sell to Outside Buyer or Buyers.
To a small business owner, the sale of a large business firm can be a fulfilling event.
When planning to sell your business, sales support can be made available through:
The Internet for small firms
Brokerage firms which serve businesses with a value of $2M-5M
Investment bankers who seek challenging opportunities
Mergers & Acquisitions specialists who serve the larger business market
With brokers only selling about 20% of the total number of small businesses available for sale and about half of those offered, preparation best begins at start up to build your business to sell to an outside buyer.
Items To Consider
Key conditions, actions and information to be considered in selling a business to a prospective buyer outside your immediate family or business include:
1) Achieve Growth Per Plan
Buyers give a high priority to documented growth and its rationale
A Business Plan best defines strategy to achieve future results
Accompanying financial data should be easy to read and assess
Ideally a documented Marketing Plan is being routinely managed
2) Develop Transferable Value
Value is to be determined without an owner’s presence or influence
Earnings should be normalized to best determine business value
A diversified customer base gives opportunities and reduces risk
Defined and documented processes are aids to assure success
3) Anticipate Buyer Objectives
Type of buyer and specific firms as buyers should be identified
Financial buyers focus on cash flow and return on investment
Strategic buyers look for best synergy between their firm and yours
A Business Profile answers many questions before they are asked
4) Align Exit Conditions
Attention should first be focused on net cash desired from a sale
A Corporate firm sale can be either Assets or Stock of an owner
Cash flow and income taxes typically have the greatest impact
Sales and Employment Contracts should align to an owner’s favor
This is the third part of a series of articles on Exit Planning. Future blogs in this series will focus on Business Valuation.
Certified Management Consultant, One Page Planner, Succession Planning