How to Make a Successful Business Sale, in Six Steps
Not all business owners want to sell their company, but an increasing number are treating their company as an asset, intending to sell, and willing to take risks to grow and build value.
At the recent Australian Centre for Business Growth Alumni Summit, three CEOs who achieved multi-million dollar exits over the past 12 months shared their experiences and steps taken to a successful company sale.
Understand your motivation for selling
When the phone rings and someone asks if you are interested in selling, your first thought might be “Really? My company?” Closely followed by “How much?” But an “interested buyer” and “price” are just two of the factors you should consider.
Think about any conditions you’d put on a sale. Some CEOs are willing to accept a lower price if the purchaser agrees not to move the company. Others will only sell to a purchaser where there is a good cultural fit. Some want to walk away after the papers are signed; some want to stay involved. Some want all cash; others want cash and equity. Identifying the non-negotiables early will make the process easier.
Know the risks and rewards
There are many options for selling your company. You could sell to another company, list the company on the ASX, find a partner or let employees buy into the company, or sell a specific part of the company to another corporation. In short, there are many options and combinations.
Each involves different risks and rewards and takes different amounts of time to consummate. Talk with others who have sold some or all of their company and seek out good business advice to determine which option meets your needs.
Engage experienced advisers
Don’t just follow your instincts. Lawyers, accountants and business advisers with experience selling a company have a very important role to play. The first step is to get a proper valuation. This will involve sharing commercially sensitive information, so choose an experienced, reputable, trustworthy adviser with a successful track record. Do your homework, check them out, and check references with past clients.
Listen to the advice they give you and be open to their suggestions. Work with them, adopt a cooperative approach, and take time to review the documents they prepare, their recommended sales strategy, and their list of possible prospects. Consider incentivising your advisers to get the best outcome.
Have a multi-year business plan
Whoever considers purchasing your company will want to review your business plan. You need to show your plans for increasing revenue in the coming years, your customer list, your product roadmap, your marketing strategies, your management of cash flow, and how you have achieved your current levels of profitability.
If you are setting yourself up for sale, you need to set revenue goals and timelines for achieving those goals. The founders of one of our alumni companies drew up a three-year exit plan that outlined what they thought a sale would look like. They even created a shortlist of who might buy the company and why. When they were approached sooner than expected, they were more prepared for a sale than they would otherwise have been.
Be aware of the risks of a sale
Due diligence is a big distraction, and it can take months – even years – before a contract is signed. Providing information, explaining and justifying past decisions and future strategies take time. But while you are doing that, it’s essential that you keep yourself and the team focused on executing the company’s growth plan. Buyers are looking for certainty and upside. If either is in doubt, they begin to cool quickly.
It takes time to gain alignment, to make sure that your prospective buyer understands and supports your growth plans, and that there’s a good values match. Getting the buyer across the company’s business goals and aligned with the culture will be important factors in the success of the sale. And don’t get distracted by the potential “windfall” or “count your chickens before they are hatched”. Stay focused, keep executing on your plans, and demonstrate that your company is worth the price they are paying.
Prepare your own exit strategy
Decide on how you are going to exit – and when. Some prefer a clean exit; others think they would prefer a transition, but then find it’s challenging to have new people telling them how they plan to change the business.
Many founders who agree to some cash at the closing and the rest at the end of their earn-out period become impatient and don’t make it through the earn-out period, or find it difficult to deliver the agreed results when so many factors have changed.
Letting go is hard, and some entrepreneurs "grieve" for their companies, and for the person they were when they were CEO. So take the time to figure out your next move. You may want to learn a new skill, climb Mt. Kilimanjaro, take that long-promised vacation, volunteer or mentor. You could start another company, or become a board director. If you recognize your responsibility to give back and pay forward, there will be lots of opportunities to use the knowledge you have gained. Many people helped you get where you are; now use the time, knowledge and resources you’ve gained to help other CEOs learn how to scale up.