How do I prepare to sell my business or be acquired?
By Jordyn Dahl
In Brief: (1) Be honest with yourself about the current macroeconomic conditions and what your business would be worth in that environment. (2) Remember, a deal isn’t done until it’s signed and business should continue as usual until that happens. (3) Understand what an acquirer would want from you after the sale.
Every business owner needs an exit strategy. This could take the form of handing the reins to another member of the family, being acquired by a larger company or competitor or selling to an employee or someone outside the firm. Regardless of the path a business owner takes, there are myriad pitfalls to avoid and ways to make the process go smoother. Here are some key strategies to put into place when you are considering selling your business.
Make sure it’s the right time
The value of your company largely depends on macroeconomic factors, which industries are on the rise and how much cash potential acquirers have on hand. Some questions to consider when making that calculation: How was your company’s past year’s performance and what narrative will that demonstrate to potential acquirers? If you choose not to sell, are you confident you can continue to grow the company? And what does that timeframe look like?
“Timing is everything: like with product sales, you may have the best thing on the planet, if the buyer is not ready to buy you wouldn’t waste time knocking on their door.”
— Jeroen Plink is the cofounder of LegalTechnology Hub in New York and a board member at legal technology firm Casetext
Start planning early
Whether you’re dating, starting a new job or networking, you want to put your best foot forward and make a good first impression. The same applies when you want to sell your company. If you know that is a path you want to take, start your planning early so you can put yourself in the best position possible. A buyer is looking to acquire the services or products your company sells, but they are also acquiring talent, which often includes the owner.
“In a smaller business, the business owner tends to occupy all of the major ‘seats’ in the company. They need to start replacing themselves in these roles, so that they can become the visionary, expanding the business and looking for other growth opportunities. The buyer wants a company that is successful and has a great team on board with the same vision.”
— Denice Gierach is the owner of consulting firm Gierarch Law Firm, which works with private or family-owned companies to help them grow. She has been in business for over 35 years.
Do your due diligence on a potential buyer?
It’s worth your while to build a relationship with a potential buyer, such as the executive who will lead the acquisition, but also understand that if your point of contact should leave before the deal is inked, that could pose a problem. The most important step, however, is to research how previous acquisitions have taken place, where the founders and top employees of the acquired firms are now and how the service or product was integrated or changed post-acquisition.?
“Take a very close look at the culture, ownership, practices and financials of the organization you are thinking of selling to. Talk to the principals of other firms they acquired to see if the reality matches the rhetoric. And look beyond who you may be reporting to initially, because that person may leave, get reassigned, etc.”
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— Nick Kalm is the founder of Chicago-based communications firm Reputation Partners, which has been in business for over 20 years.
Put a process in place?
Putting your business on the market will take a mental toll on you and your employees, and that stress could end up tanking a deal if it’s not managed well. Plan for the stress in advance, and aim to continue running your business as if it’s not preparing to be acquired at all.
“You maximize your outcome by running a tight process, and this also reduces risk and distraction for you. Give all of the interested companies a window of time — weeks, not months — to look at your company and decide whether they will make an offer. Creating this competitive process with clear deadlines helps motivate buyers to act versus wait and can increase your value as they worry about their competitors.”
— Daniel Lewis is a vice president at LexisNexus, which acquired his startup Ravel Law. He holds a JD from Stanford Law School.
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Meet the experts
Jeroen Plink is the cofounder of LegalTechnology Hub in New York and a board member at legal technology firm Casetext.
Denice Gierach is the owner of consulting firm Gierarch Law Firm, which works with private or family-owned companies to help them grow. She has been in business for over 35 years.
Nick Kalm is the founder of Chicago-based communications firm Reputation Partners, which has been in business for over 20 years.
Daniel Lewis is a vice president at LexisNexus, which acquired his startup Ravel Law. He holds a JD from Stanford Law School.
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Transaction and Restructuring Information Management “Evangelist”
2 年A great part of the strategy is to set up a SmartRoom early in the process, with tremendous tools to make the whole endeavor seamless, and with reasonable costs for the service level provided!
Certified GGOB Corporate Coach | We create inspirational, growth-driven, and people-centric cultures one courageous company at a time. | The Great Game of Business | ESOP
2 年Not sure why a third option didn’t make it into the article. Some owners choose to sell their business to an ESOP. It has many tax advantages depending on your corporate structure. It also helps the employees that grew the business with you. The The National Center for Employee Ownership (NCEO) is a great resource if that is something you are considering. Don’t say no before you take a minute to research the possibility.
Activator | Helping Impact Leaders Build Strong & Inclusive Economies
2 年Agree with Doug Gjerde — there are so many personal factors to consider, and selling the business is a very emotional process. This is a major reason why 3 out of every 5 small business owners don’t have a business succession plan in place. It requires time (which most owners have precious little of), confronting one’s own mortality, and concerns about handing off what is often their life’s work. When selling to a competitor or larger firm, there are also concerns about how a sale will impact employees (mergers = terminations), local suppliers who you have long term relationships with who may lose business, and customers who are loyal to the brand and customer experience you’ve so carefully curated. One option the article doesn’t touch on is transitioning your company to broad-based employee ownership. For owners concerned with brand, legacy, and stewardship of employees, local suppliers, and community impact, Employee Ownership is a solid option to consider. Plus you can start with a partial sale, and build in a transition period so owners can stay on as advisors and support leadership transitions. ESOPs also have huge tax benefits.
I focus on retirement planning and tax reduction. I guide clients to gain clarity and confidence in retirement. Managing Partner and Wealth Advisor | CFP?, MBA
2 年Great article. An issue that I see getting too little thought from owners are the personal factors.The business value, the transaction and the buyer get attention. But the future life and happiness of the owner often gets short shrift. It is an enormous list of emotional changes that many are not ready for. How will you replace the client and work relationships? Where will your fulfillment come from? How will you spend your time?