Many entrepreneurs think that they need to find a big buyer to get top dollar for their business. Bigger isn’t always best, though. Sometimes strategic buyers who are smaller and see the value in a company are even better. No matter the exit goal, business owners must be strategic about when and to whom they sell.
That begins with building and continuously revisiting an intelligent exit strategy. Forbes reports that just 20 to 30 percent of businesses on the market find the right buyer. Even after selling, integration failures can drive that number even lower. With so much of owners’ wealth wrapped up in their companies, planning for an eventual exit isn’t a luxury. It’s financial management 101. Part of that exit plan should include making the owner’s role transferable. When a company is excessively dependent on its owner for daily operations, a value decline becomes almost inevitable after the owner’s departure.
But it all begins with finding the right buyer. Here are three strategies for accomplishing this feat:
- Think about succession. If a family member or manager might rise to the job, begin training them now. No matter to whom the owner intends to transfer ownership, they must ensure the team is well-trained from the top to the bottom, so that they can run the company after the sale. This may open up potential buyers in the form of employees and managers. It also makes the company a much more attractive target.
- Weigh Investment Banker options. A sale is more likely to be successful with an experienced Investment Banker on the team. Owners should ask what the banker sees as key value drivers for their business, and discussing with them the marketing strategies they think will use with the company. An Investment Banker can greatly increase the total value of the sale. All businesses need a truly skilled, highly experienced advisor working on their behalf.
- Pre-qualify buyers. The most successful sales processes are highly competitive. Owners should ideally be working with more than one buyer. No matter how many buyers an owner reaches out to, they must ensure they are qualified, and not mere window shoppers. Owners must also confirm that the buyer can access appropriate funding, and make certain they understand their role in the financing. Banks often require sellers to provide some financing. If this is the path an owner takes, it is especially important to ensure the buyer can honor their commitments. Owners mustn’t stop with financial vetting, though. They must also ensure the buyer has the right qualifications to run the business, and that they are serious about seeing the sale through to completion.
Everything flows from finding the right buyer, since the right purchaser can see the inherent value in a company while preparing to run it from day one. Owners must not accept the first bid they get, or allow the pressures of running a company to cause them to compromise when choosing a buyer. The right advisor is critical for supporting owners as they weigh their options for a sale.
About Vision Point Capital
For over 20 years, our team has supported our clients with comprehensive advisory services to help them with their complex business valuation and transition needs. Few other firms offer such a complete suite of business transition services as it relates to M&A, Valuation, and ESOPs.
Our client’s personal goals are at the heart of everything we do. We are well versed in advising clients across a broad range of industries and help them manage and navigate valuation and all the business transition alternatives available to them. In fact, when you work with Vision Point Capital, you leverage our resources, experience, and expertise to help you grow faster and optimize value for reaching a successful business transition.
