8 Rules for Preparing Your Company for Sale

1. Start Planning Early - 2-4 years before shareholders or partners want to sell. It can take that long for the changes described and recommended below to be made.

2. Know what type of Investor or Buyer is Best Suited for Your Company – Want to sell to your employees? Sell to another company in your industry or part of your supply chain? Want the company to continue as a viable going concern after you leave ? All these options require a different game plan to achieve the desired goal. Understand which type of buyer/investor is right for your circumstances and how to best position the company so that this exit event occurs.

3. Put a Growth Strategy in Place Now – Despite our tough economic times, a growth strategy is imperative to being able to realize a future liquidiation event, no matter what type of buyer/investor you are targeting.

4. Recognize the Buyer/Investor is Acquiring the Future – More than ever now, they are not buying past performance, they are buying the future performance of the management team’s ability to deliver on the promise of the growth strategy. So the growth strategy has to be be well under way and producing results by the time you are ready to sell. The management team that implements this strategy are the people that will be staying with the firm after the primary shareholders leave.

5. Recognize Your Role as Owner Has Changed – If you are planning to sell, you need think of yourself now as an investor, not an owner and certainly not a manager. Your knowledge, key relationships and abilities have to be transferred to and found in your management team now, not the day after you leave.  You are not your company.

6. Deliver What You Promise – The number of companies on the market looking for exit strategies will double as boomers retire over the next ten years. Your company will have to stand out from the pack. Your company should have an outstanding solution or product offering and the financial performance in the balance sheet and income statement to prove it out. Your internal systems deliver exactly what is promised to customers in a way that makes it hassle free, unique, of high value and delivers recurring revenue. Check in with your target market. What do they think about your offering? Set up key performance indicators to manage toward the future, rather than viewing only through the rearview mirror.

7. Difficult People? Conflicted Workplace Culture? Growth and Change Will Be Almost Impossible. If you’ve got some rub points that make delivering customer value or financial performance unreliable, now is the time to deal with them , not later. If you’re struggling to change entrenched ways of working, poor performance, lack of alignment between strategy and action, then get help sorting it out. Learn how to take a different approach and get to the heart of the issues that block change, growth and ultimately profitability. There is a much better way which is far less painful.

8. Get the Right Advisors on Board – You will need an accounting group familiar with exit transactions and tax issues, a legal firm able to prepare the foundation for an acquisition so the deal goes through smoothly without skeletons jumping out at inopportune times and investment advisors to help package the company. Know who to get on board, how to find them and strategize when you bring them in.

You may need help with some of these Valuation Planning Steps. Get it sooner rather than later. For a private seminar on any or all of these topics, please contact us.

Vancouver Sun on Boomers Preparing to Sell their Businesses

Harvey Enchin of the Vancouver Sun did a story on the fact that boomer business owners say they want to retire in the next three to five years, which means selling their businesses but they have not prepared their companies to get the highest valuation. Here’s the story. http://www.canada.com/vancouversun/columnists/story.html?id=c9388f05-f1c7-4960-812f-b6c8b15b454a Why do you think business owners are not doing adequate preparation to make their businesses attractive to sell? Add a comment below.

CBC talking about boomer business owners unprepared to sell their companies

It seems that slowly the word is getting out to business owners that they had better get the help they need to position their companies correctly in order to be ready to retire. The CBC just announced RBC’s latest study on the strange trend that owners don’t know how and are not thinking about how to extract the wealth they have built up in their companies. You can read about the latest study here.

The Right Exit Strategy – Management Buyout?

If you own a business and are thinking of getting out in the next few years, you might want to know your exit options. They are changing rapidly as the economy is on the decline and the number of boomers heading into retirement doubles the number of businesses for sale each year. This series illuminates the pros and cons of each type of liquidity option for business owners.

1. Management Buyout (MBO)

Pros – Your team knows the business. This is a good option for family members working in the business. It can be done in stages so that there isn’t a shock to the business or the buyer and seller.

Questions? Does the management team also know how to grow the business? Is your company’s balance sheet, income statement and future prospects strong enough to support this team to get bank financing or other investors to fund the buyout?

Cons – The MBO is rife with conflict of interest: The principal-agent problem and moral hazard can derail a company quickly if both parties haven’t worked out an agreement to protect their own and the business’ interests. Managing the conflicts during and after is critical to success. Each side in the transaction should have their own coach or counsel. Getting financing can be tough and time consuming. It may mean that the owner gets paid out over time as long as the company keeps making its goals. And if the company doesn’t?

Questions? What happens to the relationship you, the owner has with your management team during the negotiation process? If there is a fall out and you didn’t have an agreement as to how you would behave during the negotiation and afterward, you could lose your team. Then what? You have to run the business yourself and spend at least a year training someone else (if you can find the right person) before you and your company are in a position to look for another buyer.

Financing for MBOs may come from a bank or a private equity investor. Watch for the fact that the bank or the private equity investor may have different goals than the management team buying out the business. The management team has to have a crackerjack business plan for growth for a company that already should be growing. Be prepared for intense and detailed due diligence: investors want to know where the problems are and will be.

Does Leaving the Business to Family Continue to Build Wealth?

Apparently not, says Tom Deans, a former business owner who has been president of a large family business for almost a decade. Only a third of family businesses (90% of businesses today are family owned) succeed in passing along a business to the next generation and continue to build wealth. Why? It’s an emotional issue. If you’ve received the gift of a business, its very hard to sell it. Secondly, the responsibility of continuing the notion that they must leave a legacy makes wealth extraction very difficult. Thirdly, sons and daughters may lack the skill sets, the passion, and interest to effectively operate the business.

What’s the best solution? Sell the business, don’t gift it. Give money, not a business. The company should be valued at a fair price and if the next generation wants to buy in, then that is a more successful transaction, says Tom Deans. Read more from his book “Every Family’s Business” to understand how to communicate succession planning issues amongst family members.

Selling a Business Case Studies

Why sell a business?

Our clients have myriad reasons.

One conglomerate bought several in a bundle and one of them did not fit their strategic direction. Another did want the responsibility of running it anymore.

When you are ready to sell there are suddenly a lot more things to think about than most owners would have ever imagined.

Getting Ready for Sale Case Studies

• If we want $8 million for our company when we sell it, what do we have to do now to get that price?
• Lame Duck or Worthwhile Investment?
• It’s Time to Sell

If we want $8 million for our company when we sell it, what do we have to do now to get that price?

Case Study Project Description

Two partners had built a sizeable operation catering to the booming construction market. Sales were double digit and growth was outpacing their ability to manage resources. There was a tight labor market and experienced people were in short supply.

Project Problem

The partners were nearing an age when they had to start thinking about succession planning. And frankly, the stress of keeping it all together without the right people was taking a toll on their health and their working relationship. What would it take to sell they wondered?

Their immediate problem seemed to be their frustration at the lack of self responsibility amongst their managers and site staff. Tempers often flared. Perhaps this was leading to the desire to sell?

Solution

We looked at their entire operation from the people issues right through to the way they estimated and sold jobs. Each year, despite increases in revenues and more jobs coming their way, the profit margin was slipping. We showed them how this fluctuating profit margin would affect the sales price. We were able to pinpoint the reasons for the fluctuations and began to set up a key performance indicator system. Reorganizing the company’s roles and responsibilities to get this information reported was critical. The reporting responsibility would be assigned to teams and individuals. A new incentive system would be awarded based on managers’ ability to produce the indicators in a timely manner.

On the people front, we challenged the way the senior managers and owners communicated and taught them tools to start making adjustments in their attitudes, reactions and styles. Managers started to learn how to work to their own strengths and focus on amplifying what they did do well. The reorganization opened up promotion opportunities and suddenly with good role descriptions and incentives, people within the organization were applying. The owners were coached in how to collect useful information and make decisions together while respecting each other’s differences and ways of working. They split up duties so that each played to their strengths.

Result

It will probably take 2-3 years for their profit margins to improve and show year to year consistency and growth and possibly four to seven years to grow the company to the level that would make it worthwhile enough for the price the partners want for it. They have settled into this realization and are already seeing improvement in staff attitudes and the way work gets done, which has brought down the stress levels considerably.

Variances are declining and the focus is on learning to build a better management system so that projects flow through the company in the most cost effective manner. The key performance indicators will soon give the owners the freedom to be away from the office more often as they will have critical decision making data. The management performance system will allow them to build trust and capability through the ranks so that they don’t have to be there all the time. These types of changes are exactly what an investor wants to see.