If you believe that your best transition option may be to sell externally, or you are strongly considering it, you are not alone. This is the option most often attempted, but not often achieved. Many owners want to sell their business externally because they don’t know about other options.
Some believe it will net them the highest dollar amount. And others simply do not desire an internal transfer or just don’t have anyone internally who could buy it. In considering an external transfer, there are a number of things you need to consider in order to achieve the best possible results.
- Understand the marketplace dynamics – The market for selling privately held businesses is extremely active and is likely to pick up and continue for the next 10 to 15 years due to the baby boomers hitting retirement age or experiencing a life event. Owners need to understand the business-transfer cycles and anticipate the impact of things such as baby-boomer business sales when they think about the right timing for their selling their businesses.
- Position your business in the best possible light – You need to do all that you can to prepare your business and make it attractive to outside buyers. Many sellers skip this step, and they are never able to find a buyer of any type.
- Find the right buyer – There are many factors to consider when you select the optimal buyer for your business, and you need to allow ample time for the selling process to play out. An intermediary should qualify all prospective buyers to be sure they have the capital needed to complete the transaction and they are the right fit for your goals before you engage them.
- Work with the best advisory team – You will need to enlist the assistance of the right advisory team to build company value, prepare you to compete in the marketplace, perform pre-deal diligence, and address potential deal killers in advance. You want to make sure to find people you trust, including transition planners, brokers/intermediaries, estate planners, attorneys, accountants, insurance providers, and business appraisers.
- Understand how much money you need to live the rest of your life -- Many owners grow their businesses believing that they will simply sell it one day when they are ready and receive enough proceeds, after taxes and fees, to live out the rest of their life. Owners often don’t understand how much they need or how much they will pay in taxes and fees. Understanding these numbers is critical for every owner.
- Negotiate the best possible deal – One cardinal rule of negotiating is never to be the first one at the table to mention price. An experienced acquirer who sees the potential may have a higher price in mind. Value is very subjective. Owners will always regret leaving money on the table if they make this mistake.
We hope that selling your business externally is not your only option. Chances are, if you are reading this, you still have time to plan. This is not a simple process and can take a lot of time – potentially years, which is why planning is imperative. Do not travel down this path alone and without planning!