Beyond Financials: The Real Keys to Selling Your Business

When the time comes to sell your business, there is tremendous emphasis on financial reports. The company’s performance leading up to and during the sale process will be important for proper valuation and for structuring the ultimate transaction. However, strong financial performance alone does not guarantee a successful experience or even an executed deal.

In his 2017 book entitled ‘The Road Beyond – What Nobody Tells You About Selling a Midsized Business’, one of the foremost respected M&A advisors on the East coast, Achim Neumann, President of A. Neumann & Associates, states, “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.”?

It is easy to underestimate the importance of other key ingredients that will make completing the sale more efficient.? Beyond the numbers and margins, the tax returns and valuation multiples, there are the human factors.

A Prepared and Motivated Seller – The business owner’s level of motivation for selling will be gauged by the prospective buyer before opening serious negotiations.?It has been estimated that 75% of business sellers face some aspect of regret a year later. One of the most important ingredients for the successful sale of the business is the business owner taking their time to become mentally prepared and “at peace” with the decision to sell. What will you do with yourself post-sale?? Who will you become?

Most business owners’ public identity is tied to ownership of their enterprise, and a change may create a challenging transition. The owner’s monetary and lifestyle goals must be clearly defined and obtainable. Moreover, they must be willing to go through the process and endure the stress involved in meeting those objectives.?

Once the emotional decision is made, then the seller must know what to expect beyond the value and deal structure before going to market. This is accomplished with a proper independent, accredited fair-market valuation. A qualified M&A advisor knows how to bring together all the components to prepare the valuation, including a recasting of the financial reports, the marketability assessment, and a detailed business information organizer that will generate the details needed to prepare the marketing documents. All the positives and negatives are addressed in this early phase including process steps, confidentiality, timelines, tax implications, seller notes, along with tangible assets and real estate implications if applicable.

A Cohesive and Efficient Team – In order to complete a transaction, a qualified team of professionals needs to be in place to support the owner.? The team should include a tax/financial advisor, a transaction attorney, and an experienced M&A advisor.?Each professional should understand their specific role, prioritize the transaction, act efficiently on behalf of the owner, and defer to the expertise of their colleagues. Good communication and dialogue throughout the various steps are critical to success.?In addition, it is crucial that all stakeholders including spouses, family members, and key advisors be one hundred percent supportive and share the motivation to sell.?Anything less will cast doubt and put the deal closing in jeopardy.

The Correct Buyer – What happens when a buyer approaches a business owner with a proposition to purchase while multiple other potential buyers are placing bids for the company?? Although flattering, this can be problematic.?Before committing to a deal with a potential buyer, it is critical to know who each buyer is, their management capabilities, and their financial qualifications to complete the proposed transaction.?Good chemistry, communication, and professionalism add up to the proposed buyer being “a good fit” to maintain the positive culture of the employees, vendors, and customers.

The buyer should be decisive and have a well-prepared vision for success.?Obviously, a buyer unable to qualify for bank financing or secure a seller note will doom the transaction. 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 expect an uphill battle to close the deal.

Choosing the wrong buyer can jeopardize confidentiality, waste months of valuable time, and exhaust professional resources. It will also reduce the negotiating leverage with other buyers as you return to the market after each failed attempt.?

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 will be numerous tasks and potential problems that need to be deftly navigated. These could include coordinating the myriad financial documents needed by buyer/bank, handling landlord/lease issues, filing any necessary environmental impact or regulatory documents, obtaining debt/UCC terminations, addressing any buyer concerns, and working with the financing bank and transaction attorney 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 these points of contention before and is best positioned to address any challenges along the way – an invaluable resource for the business owner.

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 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.?To avoid a failed process, proper preparation and an experienced M&A team will go a long way to alleviating any fears involved with the sale of a business.”?

Selling a business is never an easy task. Combining these four elements with a properly priced and professionally marketed business offering will greatly increase the chances of a successful closing. Thoughtful planning with a proactive team properly maneuvering toward a rewarding transaction will not only meet the goals of the owner, but also reward employees remaining with the new owners.?