Every entrepreneurs always dream big which is one good thing that characterise people who own businesses. But one of the most exciting parts of entrepreneurship is having an opportunity to sell your company. Many business owners dream of getting a huge offer, signing contracts and sailing off into the sunset. The question, is it that easy?
The truth is that it is never easy selling a business that one have founded because it requires significant financial and emotional preparation.
Below are seven key points you will need if you want to maximize both business valuation and happiness:
1You must Have a great track record
Businesses that get high valuations have a credible future growth story. No buyer will want to invest in a business that has not been successful in generating income. Having two or three straight years of solid sales and earnings growth will maximize your earnings multiple.
2Sell the future
Even if earnings have been growing steadily, you need a bulletproof business plan that shows that your competitive position will continue to be strong. Business is a full-contact sport, and that’s why most companies fail in the long run. In your sales deck, you need deep information on market sizes, competition and clients that shows how your business will credibly continue shooting the lights out.
3Hire The Best Advisers
Many first-time entrepreneurs are stunned when they see how much top-tier lawyers and bankers charge for mergers and acquisitions services, and then make a huge mistake by trying to save expenses using mediocre advisers. At closing, signed contracts can stack up over 6 inches in height, and sharp lawyers know how to make sure you aren’t going to get in trouble in the future. So regardless of the size of your buyout, get over the sticker shock and hire the best and brightest working your side of the table.
4 Have Audited Financials
One of the biggest deal-breakers during due diligence is when a buyer is negatively surprised by the state of the target company’s accounting and record keeping. Before you start a sale process, make sure that your numbers are very organized and presentable. I also highly recommend informing your CFO as early as possible in your sales process, because you will inevitably need that person to get through a tough due diligence.
5Management team matters
Buyers who pay top dollar need to know that one or two charismatic and indispensable leaders aren’t holding the business together. Ideally, your business should have leaders in finance, sales and operations who have teams underneath them. Even if you do not allow your buyer to meet your senior staff, their biographies will prove that your business isn’t micromanaged.
6Be willing to walk
Never “fall in love” with a potential buyer (and a big payout) before the deal is closed. A sale can take between three and 12 months to complete, and many times buyers will push for contractual terms that are unattractive. It can be wise to compromise, but other times you need to be willing to kill the deal to get what you want. M&A is a very high-stakes poker game, and if you tell the other side that a certain term is a deal-breaker, you better be willing to walk away.
7 Know Why You Are Selling Your Company
If you are selling out just because of the money, be careful for what you wish for. Believe it or not, one of the emotions you will feel after selling a business is a sense of anti-climax because you may miss your old identity. Ideally, you should sell your business because of synergies with the buyer, or because a sale will allow you to move onto an already defined project.