Dec 8th, 2015 by Gary Herviou, Vice President
Successfully selling a business is a unique and challenging project to say the least. A business owner must have many things in place in order to have a high probability of an efficient transfer and exit from their own company.
According to Achim Neumann, President of A Neumann & Associates, LLC, A NJ based Mergers & Acquisitions and Business brokerage firm, “Selling a business is not like selling a piece of real estate – while both are daunting, there are many more complexities and nuances to properly marketing and closing on a commercial enterprise. It is imperative that the business owner has his house in order so to speak to have any chance of a fruitful experience.”
With that in mind, here is a look at 10 checklist items that must be in place before a deal can ultimately be completed:
- Clear Goal & Motivation – An owner must be fully committed to achieving the goal of selling a business or it will never get done. Without such motivation, much time and energy will be spent in a hollow pursuit of an unrealistic outcome.
- Trustworthy Team of Professionals – From a valued CPA to an experienced corporate attorney to a savvy M&A firm, this will be the team to execute an efficient transaction – quickly maximizing financial return in a professional and confidential manner. This team will help the owner understand the process, determine a path forward and close the deal with the right buyer.
- Honest Information – Decisions are only as good as the information that they are based upon. Before making the decision to sell a business, an owner must fully understand the correct valuation of the firm, its marketability and the leverage going into the marketplace. This is properly done through an independent business valuation that is accredited, multi-dimensional and meets the requirements for SBA lending. This process and document will set the stage for the efficient transaction.
- Viable Business – Is the business profitable? Does ownership get paid? Does ownership enjoy some other benefits and perks? If yes, then this is a good start. Some other aspects of a viable business are positive revenue/profit trends, strong demand for the product or service, clean facility and an experienced professional team in place. Businesses are valued and sold as ongoing concerns – it must be attractive to own in order for someone else take a huge risk and be interested in the investment.
- Clean & Accurate Recordkeeping– Numbers matter and properly filed tax returns (instead of “cash” or two sets of books) along with current financial statements are a key to any transaction. Correct valuation, marketing, buyer due diligence and bank financing all hinge on this aspect.
- Distinct Competitive Advantage – A business owner must be able to articulate exactly why they are successful and why their clientele is loyal to them. Competition is fierce and a buyer will want to know precisely what sets them apart from it – whether it be pricing, unique offerings, superior customer service or convenient location. What is the source of the success?
- Enticing Growth Perspectives – Buyers invariably want to know if the company is scalable and can revenue be increased moving forward. After all, they are making a sizeable investment out of their own pocket and certainly want to know the path upwards. An owner should be able to explain the exact kinds of monetary investments needed (salesperson, new fleet, new territories, etc.) that can make a significant impact on sales. New target markets and new product/service offerings must be a possibility for a potential buyer to act aggressively.
- Flexibility – It is important for buyers to see flexibility in a seller with regards to transition time, possible consultation agreement moving forward, lease terms and the like. If a seller simply states that he wants to hand over the keys and move to the Bahamas, it will be a long time before anyone takes that seriously. Most sellers want to make sure that “their baby” is in good hands and is successful moving forward, so this is rarely an issue. A supportive seller is always a plus with the buyers.
- Leverage – The stronger the sellers’ position, the better the deal structure will be. The ingredients for positive leverage include solid revenue growth (demand within a strong industry) and no dependencies. Dependencies of any kind (heavy client concentration, irreplaceable employee or the owner themselves) are not attractive and will certainly diminish bargaining power accordingly. You are only a strong as your weakest link and you can be sure that a buyer will exploit that weakness. The result will show itself in the offer made and the deal ultimately executed.
- Patience – It generally takes 1 to 2 years to properly prepare a business for sale including an accredited business valuation and corrective measures. It then will take another year or so to ultimately get to the closing table. Even with a strong team in place, the business owner must maintain strong performance and remain patient throughout a process that is complicated and demanding.
“While selling a business is challenging and time consuming, it certainly is doable and rewarding if done properly, “ says Gary Herviou, Vice President, “It is critical for a seller to begin early – proper valuation and marketability analysis is the first step in understanding exactly what is needed to meet the exit strategy goal.” With the correct team of professionals and the proper approach in tow, a business owner can and will execute a transaction that is worthy of the great business they built.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage with more than 30 years of experience in PA, NJ, NY, DE and MD that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with national networks of qualified buyers and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.