There are hundreds of thousands of small businesses available for purchase yet 80% won’t sell. Many businesses are overpriced, the asking price is solely based upon the owner’s desire to make x amount of dollars. How do you ensure a successful sale and the best return on what is likely your most valuable financial asset?
These critical decisions are among those for which owners are least prepared since they may be confronted only once in a lifetime. Owners may have decades of experience at managing their business but little to no experience with the complex process surrounding their exit. Every business owner leaves their business, either by death, sale, closing or succession. Which way do you want to leave?
Here are 3 tips to increase your shareholder value and close the deal:
Timing: Early planning is essential
Although every business will be faced by the owner’s exit, very few small business have a liquidity or transition plan in place. Caught in the day-to-day management, they fail to recognize it is already time to think about their exit. As a result, they react to a life event, aging, illness, etc., and do not harvest the fruits of their life labor through a proactive strategy.
A sufficient time-frame, generally between three to seven years, will dramatically increase your leverage and consequently your return.
Value drivers: Objectively assess your business
A small business owner’s life is often so intricately intertwined with the business that it makes it very difficult for them to objectively and effectively assess the value of the business. A professional third-party assessment will identify the business’ value drivers from a buyer’s perspective:
– Competitive advantage in the marketplace
– Diversity of customer base
– Business strategy
– Synergy of systems and processes
– Quality of the management team,
– Cash flow and profitability
Every deal is unique and what you hear about what a similar business sold for rarely includes information about the many differences between the businesses. Value your business on its own merits.
Manage the business right up to closing
Assessing the value of the business allows time to understand its strengths and to identify and shore up its weaknesses. It gives ample time to:
The sale process can be extraordinarily emotional and time-consuming. It is surprisingly easy for you and your management team to be so focused on the sale process that you stop managing the business effectively. To execute your exit strategy at the highest level while navigating unchartered waters, augment your team with the right expertise of an outsourced CFO, COO, CMO, etc. With the time constraint of an exit date, it is crucial to hit your projections.
Our experience assisting privately held business owners to develop and implement effective exit strategies shows clearly that, first, every situation is unique since each seller will have different objectives. An optimal solution for one owner may be undesirable for another. Second, optimizing the outcome upon exit depends on a carefully thought-out and well-planned exit strategy.
Altima Business Solutions is a full service Management Consulting Firm specializing in helping business owner maximize efficiency, profitability and company value to improve the lifestyle of employees and management.
Author: Carine Dieudé, Partner, Director of Strategy, specializes in growth/exit strategies, systems and operations, for small and medium size businesses.
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