graphs

Preparing for a Sale

If you’re thinking about selling your business, here are a few tips to help you prepare for the sale process.

1. Organize your financials

With organization comes credibility. Buyers rely on your financial statements to fully understand your business, and having organized financials that are easy to read and understand goes a long way towards building credibility. Consider getting the past three years of financials audited or reviewed, which builds credibility and facilitates the sale process since buyers don’t have to spend as much time verifying your numbers.

2. Demonstrate a defensible market position

One of the most important questions a buyer will ask concerns the strength of your revenue stream. The answer to this is important because a company’s value is often heavily determined based on future cash flow. To help you answer this, think about how your business is positioned defensively. How does your company differentiate itself from the competition? Are there patents, trademarks, or other forms of intellectual property that you use to protect your products and services? Demonstrate that your company’s future cash flows are predictable, and you will likely increase your company’s valuation.

3. Capitalize on new business opportunities

Buyers pay for what’s working today and what is reasonably expected to produce profits in the future. That’s why it’s up to you to capitalize on any new customers or product opportunities before the sale process. If you have a way to improve efficiency or sell to a new market, start doing that today. You’ll be turning an opportunity into a cash flow generator, and a buyer will always pay for that.

4. Articulate why you are selling

You’ll go through a range of emotions as the sales process progresses, and it’s a lot easier to keep your focus when you’ve clearly defined your reasons to sell early on. Beyond the ‘why’, you should also consider the ‘for how much.’ Your investment bank will evaluate your business and tell you what they believe it is likely worth, but it’s important that you have an idea of what you are willing to accept. Please see our Valuation Methods page for a more detailed discussion on how your business will be valued. That should help as you consider your desired selling price.

5. Think about what, if any, involvement you want with the business after a sale

Buyers will sometimes want the seller to stay with the company for a set period of time after a sale to ensure a smooth post-sale transition. Consider whether you would be willing to stay, because deciding this early in the sales process will allow your investment banker to better identify the right buyers. And if your decision is to stay, you should also consider how long are you willing to stay. There are private equity firms that not only want owners to stay in their roles but also “roll over” some of their equity, so you could be asked to remain with the company indefinitely, or at least until the PE firm exits its investment, which is often within five to seven years. When balanced against the potential gain you could receive when the company is sold again, this is often a compelling opportunity.

6. Prepare a succession plan

You should have a succession plan – and people who can succeed you – in place prior to a sale. Although some buyers can bring in their own executive(s) to run their newly acquired business, not all can, and therefore, to attract the largest pool of potential buyers, it’s important that you have a succession plan that shows the business can survive your departure. Succession plans take time to create and even longer to implement, so it’s important to start one long before a sale.

7. Select a team of advisors

You probably have certain advisors in place, such as accountants and lawyers, but there are others, like investment bankers, with whom you might yet need to build relationships. Use your network to get recommendations and build your team.

 

Aethlon Capital is a Minnesota-based investment bank with decades of experience assisting business owners in raising capital and selling their businesses. We help owners develop the necessary steps to facilitate corporate growth and align with strategic partners. Aethlon has completed mergers and acquisitions in numerous industries – from consumer products to construction, and from luxury goods to high technology.

Our professionals would enjoy the opportunity to discuss your company’s growth plan. To find out how Aethlon’s investment banking services can help you, call Sima Griffith at 612.338.6065 or email sgriffith@aethlon.com.