BEYOND FINANCIALS: THE REAL KEYS TO SELLING YOUR BUSINESS

When it comes time to selling your business, there will be tremendous emphasis on the financials.  There is no doubt that the performance of the company leading up to and during the sale process is a prominent factor – both for proper valuation and structuring the ultimate transaction.  However, strong financial performance alone does not guarantee a successful experience or even an executed deal.  Beyond the numbers and margins, there are some key ingredients that need to be in place to provide peace of mind, efficiency, and a completed sale for the business owner. Without these components in place, a challenging task will result and one that might be impossible to surmount.

As Achim Neumann, President of A Neumann & Associates, LLC. and one of the foremost respected M&A advisors on the East coast, says in his 2017 book entitled The Road Beyond – What Nobody Tells You About Selling a Midsized Business, “The goal for any caring and experienced M&A Advisory Firm is to provide proper valuation, marketability information, and brokerage services to private business owners so they can prepare for and execute an efficient sale of their company when the time is right for them – a transaction that delivers peace of mind and quickly maximizes financial return with the correct buyer in a confidential and professional manner”.

Let’s go beyond the tax returns and valuation multiples to address some equally important parts of a sale that every business owner needs to keep in mind to achieve that “efficient sale” that Mr. Neumann mentions.  These 4 ingredients are essential for ultimate success:

A Prepared and Motivated Seller – A fully motivated seller is the #1 most important ingredient needed for a successful sale of the business.  Without the business owner being mentally prepared and “at peace” with the decision to sell, it is practically impossible to complete a transaction. The owner’s goals (both monetary and lifestyle) must be clearly defined and obtainable.  Moreover, they must be willing to go through the process and endure the stress involved in order to meet those objectives.  Bottom line is that the seller must be “all in” or it is a doomed scenario.  To be comfortable with a sale, it is imperative that a clear deal structure be defined and supported before going into the market.  As a first step, a proper independent accredited fair-market valuation should be performed and delivered to the business owner. A qualified M&A advisor should be able to lay everything out for the owner (positives and negatives) and have all of their questions answered. In addition to the value and deal structure, the seller needs to know exactly what to expect from a proposed sale before going into the market – process steps, confidentiality, timeline, tax implications, seller notes, real estate, transition period and life post-closing.  If the owner’s expectations are not in sync with reality, then a difficult process to begin with becomes extremely frustrating for all involved.

A Cohesive and Efficient Team –  In order to complete a transaction, a qualified team of professionals with clearly defined roles needs to be in place to support the owner – CPA, financial advisor, business attorney and an experienced M&A advisor.  Each professional should understand their specific role in assisting the business owner and defer to the expertise of their colleagues.  Good communication and dialogue throughout the various steps is critical to success.  In addition to this team, it is crucial that all stakeholders be supportive and share the motivation to sell – this is usually spouses, family members and key advisors.  The professional team needs to prioritize the transaction and act efficiently on behalf of the owner while the family needs to be on board 100%.  Anything less will cast doubt in the eyes of the seller and certainly put the deal closing successfully into jeopardy.

The Correct Buyer – Often, a buyer will approach a business owner with a proposition to purchase, as well multiple other potential buyers vying for the company too.  That is all very flattering but can also be problematic.  Before quickly getting into a deal with a potential buyer, it is critical to know who this buyer is, their management qualifications and their financial capability to complete the proposed transaction.  Any proposed buyer must be “a good fit” with the seller and there must be good chemistry, communication, and professionalism between the two.  The buyer should be decisive and have a well-prepared vision for success.  If the seller is not convinced that the buyer will be successful in growing the company, servicing its clients, and taking care of its employees, then it will certainly be an uphill battle to close the transaction.  Moreover, if it turns out that the buyer cannot financially qualify for bank financing or properly secure a seller note, then the deal is most certainly doomed.

Choosing the wrong buyer can jeopardize confidentiality, waste months of valuable time and exhaust professional resources while at the same time reducing the negotiating leverage with other buyers as you must return to the market after a failed attempt.  Everything can be positive with the business and the offering, but accepting the wrong offer from the wrong buyer can lead to disaster.

A Problem-Solving Quarterback – Once a deal is in place, the buyer will conduct their due diligence, bank financing must be obtained, and the closing process must be completed.  During this time, there are numerous problems and tasks that will need to be deftly navigated – items such as coordinating the myriad of financial documents needed by buyer/bank, handling landlord/lease issues, filing any EPA/ISRA documents if needed, obtaining debt/UCC terminations, addressing any buyer concerns that appear, and finally working with the financing bank to close the transaction.  It is imperative that the business owner have an experienced quarterback (usually the broker or M&A advisor) dedicated to managing these tasks and bringing the deal to fruition.  Such an individual has seen all the potholes before and is best positioned to address any challenges along the way – an invaluable resource for the business owner.

Selling a business is never an easy task, but if you can combine these 4 elements with a business that is properly priced and professionally marketed with attractive financial performance then the pieces are in place for the best chances at success in meeting the goals of ownership.

As Mr. Neumann adds, “Preparing for and deciding to sell a family or privately held business is a weighty exercise that calls for a thoughtful and proactive approach.  The execution of an efficient sale as described above is a complicated process that calls for experience, discretion, patience, and professionalism. The legitimate concerns of a seller must be addressed.  Determining the ultimate deal structure with cash at closing defined, preserving confidentiality throughout the process, and maintaining the continuity of the organization are paramount priorities.  Proper preparation and an experienced M&A team will go a long way to alleviating any fears involved with the sale of a business and avoiding a failed process.” 

While there is so much emphasis and discussion about valuation, multiples, and financial performance – it is important not to forget some of the additional components needed to complete a transaction discussed here.  A motivated and prepared seller combined with the proper buyer and a process expertly managed by an experienced team of professionals are just as important as the last 6 months’ income statement.  The process of selling a privately held company is a unique experience and if handled properly, can result in an extremely rewarding transaction that fully meets the goals of the owner and the firm.  Thoughtful planning and a proactive approach with the right team will certainly result in an efficient sale of the business and a fulfilling experience for the business owner that fully realizes the goals identified going into the process.