Exit Planning: Make Your Business Sale-Ready

Exit Planning: Make Your Business Sale-Ready

Matt Gilbert

September 24, 2019

Whether you’re dreaming of retiring to a private island or simply ready for the next chapter, selling your business will change your life. With only one shot at getting it right, a sale is more likely to be successful when you make the decision to sell for the right reasons.  These reasons might range from market timing to the retirement of a partner or co-owner to personal or family health concerns to the desire to move on and do something new and invigorating. But if you’re selling because the business is struggling, you may end up disappointed. 

Many owners wonder when they should begin planning to sell. Like most things in the business world, the answer is “it depends.” However, our answer generally mimics an old saying: “The best time to plant a tree was 30 years ago. The next best time is today.” Therefore, it pays to understand what business attributes attract Buyer interest and why.  

Here are some important factors to consider: 

What Buyers Value 

To get the most out of a business sale, it’s critical to examine things from a Buyer’s perspective. Here’s what a Buyer will be looking for: 

  • Profitability:  This is the most important requirement. Buyers want to know that your business is profitable, if it will continue to be so, and if there is room for additional growth. Buyers also consider factors such as near-term potential significant capital infusion requirements or other costly investments to maintain profitability, as these expenses may consume near-term earnings.
  • Management structure:  Is your business capable of running without you? Do you have a great management team? Are your operations systematized and compliant with laws and industry norms? Or do you have dead weight on your management team and tired processes/systems in need of overhaul? 
  • Scalability:  Can the business grow? Will growth be steady and predictable, or is it limited in some way?  
  • Competitive edge:  What makes customers choose your business over another? Can competitors easily copy your products or service model? If your business lacks  inherent differentiation, are there important or unique assets that set it apart, such as brand recognition or website traffic? 
  • Culture:  Does your business have a functional, effective culture? Do employees understand how and why the business succeeds? Are they engaged and incentivized in alignment with the goals of the business? Will they be inclined to stay with the company and work just as hard for a new owner?

Technical Aspects of Selling a Business

Even in successful businesses, a number of technical hurdles can present real challenges when it comes time to sell. Some common hurdles include: 

  • Inefficiencies:  Is your business well run with a “constant-improvement” mindset, or are there inefficient people carrying on the status quo? For example, many family businesses employ family members as a favor, potentially creating unnecessary  expense and inefficiency. 
  • Worker classification:  Businesses often incorrectly classify workers as independent contractors for a variety of reasons. This practice may subject the Buyer to significant legal and tax penalties causing them to lower or adjust their offer to offset the expense required to correct the problem. 
  • Supplier contracts:  Does the business have long-term supplier contracts with less than favorable terms or outdated interest rates? Conversely, if you have contracts with more favorable terms than the current market offers, the contract might be considered an asset and be positioned as a selling point to highlight.
  • Leases:  Can your leases be assigned without the landlord’s or leaseholder’s permission? If not, could the business easily move? Buyers don’t want to undertake an expensive move right out of the gate. They first need to assimilate employees, customers, and vendors so they don’t lose them when changes become necessary. 

Fielding the Right Team for this Unique Event 

An M&A transaction advisor helps you prepare your business for sale and acts as an intermediary while taking you through the sale process. An experienced M&A attorney knows how to contain your risk without killing the deal. And a corporate event tax specialist will pay for themselves every time. No matter the circumstances you find yourself in, surrounding yourself with a skilled team of experts will expedite the sale timeline, maximize value, and lower your risk of failure to close. So get started early, and retain a deal expert you can trust. 

About GaP Business Advisors

Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving  lower middle and middle market owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.

Matt Gilbert and Bret Pardue established GaP to provide owners of  lower middle and middle market businesses – those businesses generally enjoying annual revenue of $5-$50 million – with the quality of M&A representation and value-enhancement services previously only available to middle, upper middle, and large businesses. GaP brings highly-experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.

Join hundreds of other business leaders and owners in the know. We regularly share lower middle and middle market insights and educational content aimed at helping business owners plan and navigate successful exits or partnerships.

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