Lessons From the Front Lines

We often scrutinize life leading up to the sale or IPO of businesses; however, insights gleaned from life after the sale fall through the cracks.

A business exit will represent a significant change for you. This goes both for the financial impact and the ripple effects on relationships, family, community, identity, plans, and overall well-being.

Through insights from high net worth individuals who have recently closed sales, we can learn more about what you can expect after the sale of your business. Broadly, these fall into five categories:

1. Know yourself, know your company, and know what you want to do.?

Selling your company is a significant undertaking (often—other than starting your company—the most important business decision an owner will ever make). Educate yourself on the options at your disposal and give strong thought to the pros and cons of each. If you don’t know exactly what the ideal outcome looks like, maintain flexibility in your thinking and empower your advisors to create options for you. Are you looking to exit 100 percent, or are you considering taking on an equity partner? Those two scenarios can be vastly different in?terms of how a sale process is executed, and you?will want to discuss each of them with?your advisors.

2. Purchase price is not the only consideration.

While purchase price is certainly important, there are many other considerations a business owner can and should evaluate. These considerations include, amongst others, cultural and strategic fit, contractual legal terms, speed and certainty to close. Certainty to close means that the buyer, amongst other considerations, has been fully vetted to ensure they have the resources to close the deal.

3. Start preparing for a sales transaction well in advance.

Make sure your personnel, systems, reporting and records are in order. Doing so will increase the value of your business, increase the interest you will attract, and increase the speed and certainty that you close the deal. We recommend you pay close attention to your accounting system and records, and make sure that you will produce timely and accurate income statements and balance sheets. There’s virtually no possibility that a deal of any meaningful size (over a few hundred thousand dollars) can get done without them.

4. Hire good advisers and keep your eye on the ball.

Selling your company can be a full-time job and when combined with running your business, the situation can be overwhelming. A good accountant, a good M&A attorney and a good investment banker (the latter two engage in transactions for a living) can significantly ease the "brain-damage" of going through a transaction and allow you to focus most your time on running the company. We always advise our clients to continue to do what is strategically right for their businesses and not alter the course based on the vagaries of the sales process.

5. Growth prospects drive valuation.?

It’s important that your company continue to perform and grow ("grow" being a relative term) during an M&A process, and it’s crucial that you leave some gas in the tank—as growth—for the next buyer. The more gas you leave in the tank, the more likely you are to command a premium multiple of EBITDA. In contrast, one of the worst times to sell your business is when your revenues are on the decline, as that will almost certainly result in a lower multiple.

While this list is not fully inclusive, taking these five considerations to heart will set you and your team up for an easier, more enjoyable and more successful transaction. Please let me know if you're planning a transition. I'm happy to share what we've learned in more detail.