“How should I manage my business during the sale process?”
This is a question I just got last week from a CEO was was thinking about selling his mid-market business.?
It's a pretty smart question - and his thinking two or three steps ahead about how to run the business while getting ready for a sale immediately gave him a few points in my book.
There are things to think about (1) Before a launch, (2) During the process itself, and (3) After close.
Here are some do’s and don’ts that span (1) and (2).
This is not a comprehensive list, nor is it a one-size-fits-all, so please feel free to reach out if you have any specific questions.
1. Maintain business performance:
- Keep your focus on the business. The process is fairly demanding on the leadership team and the staff that are included in the process. It's crucial that your performance does not slip during the sale process, as this can drastically affect the valuation.
- Don’t get so caught up in the sale that you neglect day-to-day operations or let standards slide.
2. Organize financials and key documentation:
- Ensure that your financial statements, contracts, customer lists, and other key documents are organized, up-to-date, and easily accessible. We routinely prep the data room as part of the process but candidly, much of this can start before even engaging an advisor.
- Disorganized, inconsistent, or outdated documentation to potential buyers is an immediate red flag and will affect their confidence in the purchase.
- On a related note, be mentally prepared for any serious buyer to ask a lot of questions about the business and go deep - sometimes these will be business trends that you (as the seller) have not even considered yet, so do your homework before a launch.
3. Assemble a strong team:
- Surround yourself with experienced professionals, including M&A advisors, attorneys, and accountants.
- Don’t try to handle everything yourself. The sale process is complex and mistakes can be costly.
4. Be transparent (and know what you should be disclosing):
- Be open about any potential issues or challenges the company may face. Surprises later in the process can jeopardize the sale.
- Part of the deal documentation will include representations and warranties that the management team has to make about the business. Leaving out (inadvertently or not) important information never ends well for the seller.
5. Be discreet:
- Don't broadcast the sale to everyone. Limit the circle of those in the know to avoid unnecessary disruptions and to maintain a stable business environment.
6. Evaluate potential buyers:
- Look for buyers that align with your company’s culture and values, especially if you care about its future direction.
- Never jump at the first offer without evaluating the buyer's ability to close the deal and their intentions for the business.
7. Stay flexible but firm:
- Understand that negotiations are a part of the process. Be open to reasonable adjustments or concessions.
- You don’t need to compromise too much or stray from your core requirements, especially if it undervalues your business. But price, terms and conditions, and structure - are all up for negotiation.
8. Plan for post-sale:
- Consider what you want to do post-sale, whether it's starting a new venture, retiring, or taking a consulting role in the business. Don’t leave this decision to the last minute.
- A clear transition plan can also make the sale more appealing to buyers.
