By Stephen Perry, an EO Orange County member and Managing Director at Janes Capital Partners
Selling a business is a difficult and tricky pursuit with many sand traps for the seller. Not all sellers engage investment bankers. Ironically, those who don’t are usually the ones who need such assistance the most. Here are five key tips for selling your business for the highest possible gain:
1. Don’t wait too long to sell: The longer sellers wait, the greater the risk that some unexpected external event– tax law changes, lawsuits, labor issues, technology changes, etc.– renders the business less valuable and potentially even unsalable.
2. Hire a strong management team and give them appropriate financial incentives: The seller needs to demonstrate that there is a strong, loyal and motivated management team in place that transcends whatever happens post transaction. Any significant deficiencies or vacant key management positions will likely result in diminished value.
3. Emphasize your quality of sales: While an entrepreneur will favor sales diversification across various industries, many buyers will seek a more focused and strategic sales approach. Any proportion of sales to an industry deemed “non-core” will be discounted and deemed unattractive to a given buyer.
4. Ensure that your financial records are in order: This is the area where sellers are typically most unprepared. Furthermore, shortcomings in this area account for the majority of “busted” deals. Upon sale, a seller typically represents that his/her financial statements are prepared in compliance with Generally Accepted Accounting Principles (GAAP). The ramifications of this are huge. GAAP is what auditors opine about in connection with an audit—which is costly to undertake.
5. Seek out niche opportunities, market differentiation and strategic significance: In today’s increasingly global and competitive world, differentiation is as important as it has ever been. Differentiation is the cornerstone of revenue growth and high sustained profit margins, both of which matter greatly to a buyer. It is also important to achieve “strategic” differentiation, gaining a position in a market niche which is deemed of strategic interest.