Selling a business continues to be the most popular exit strategy for Entrepreneurs. For whatever reason you want to sell, the following tips for selling a business will ensure you get the best price and value from any transaction.
1. Right time, right reasons
There are several reasons for selling a business. The most common reason for selling a business is that the owner falls ill or gets too old to continue with the day to day running of the business. This is most certainly the worst time to be selling a business. Selling a business is very stressful, it’s going to be extremely difficult to deal with the additional stress of selling the company under these circumstances; for another, the buyer will use your circumstances as leverage against you to erode price.
My advice is always to sell at the time when your business is at its height and demonstrates the best value to a buyer. Look internally and externally for the telling signs that it is the right time to go to market. What are the competition doing, are your margins being eroded, are your revenues flattening, is your revenue mix changing, what new products and services will drive a strategic and more valuable sale? Don’t wait too long, or wait until a sale is forced upon the business. The right time is when you have a successful business to sell and can demonstrate a valuable asset to a potential buyer.
So, what are the right reasons? Selling a business is of course a sales process and requires a consistent and attractive sales pitch. At Epsilon we focus on the key reasons why a potential buyer should buy into your company. You are on an upward trajectory, with revenues increasing in the new (and sustainable) product lines. Services revenues have increased with support and recurring contracts increasing. The company has streamlined for easy absorbs ion into the buyer’s business. These are just some of the right reasons as to why a potential buyer will be interested in your business.
2. Be clear on what is actually being sold
You need to consider all the assets of a business that are for sale. This sounds very simple and straight forward, however I have several stories of assets popping up in the Due Diligence process that were “forgotten” to that point. Determine the physical assets you are selling and what other assets (intangible) you are selling. A business often includes assets such as good will, trademarks or client database along with the physical assets. A clear pipeline and vision is a must to demonstrate longevity and upside for the buyer.
The value will depend on the total assets and their quality and perceived worth to a potential buyer. Do not rely on any valuation until you are clear on the assets that are for sale. Any broker that provides a valuation before truly understanding the assets and their make-up is speculating.
If your business is an incorporated company, you also need to decide if you are going to sell your business assets “Asset Sale” (where you sell everything in the company but not the incorporated company “entity” itself) or a share sale (where you sell everything “intangible and tangible assets” including your incorporated company).
3. Are you ready for a sale
When it comes to selling your business, you need to ensure that you are focused on the business and not the sale process. More easily said than done…This is the time to ensure that everything you do is on the money. The extra effort you put in now, will pay off when the deal is finalised.
Stay focused, and let the sales process be handled by Epsilon. Buyers want to buy businesses that are thriving, innovative and well maintained. If there is a team ready to drive the business forward, it is time to give them autonomy, let them demonstrate the enthusiasm, knowledge and passion for the business.
Reduce your liabilities as much as possible. Anything that is outstanding, will be picked up by the purchaser (either at the DD stage or prior) will erode value, far more than the value of the liability. Ensure that liabilities are well documented and understood, reducing the buyers risk.
4. Be real about value
The Market dictates the value of a company, the company is only worth what someone is willing to pay. In the same way as the Housing Market dictates how much a house is worth. There are of course, several indicators that will determine a business value (in the same way as the Housing Market). There are several ways to value a business; asset worth, strategic value multipliers, revenue based, EBITDA multipliers, clients list, support base, similar companies sold and the old fashioned, “this is what I want to pay” method. Whichever method is used, a range of value needs to be determined at the outset. Also, you cannot use one method in isolation, a broad view is far more realistic.
My one piece of advice about valuing a business, “Get a professional valuation done, and make sure all stakeholders agree with the valuation in principle so that issues do not arise when an offer is made”.
There are several ways to build in value, and increase value. The value is also going to change the longer a sale takes, speed and accuracy are key to keeping the deal on track and maintaining the value.
5. Not as easy as it looks
Selling a business is a very complex transaction, get expert advice. There will be a level of emotion involved as it is very likely you have spent many long years getting the business to the position where it can be sold. Besides providing necessary expertise to guide you through the selling process, hiring professional help can help you maintain the emotional distance and objectivity you need to successfully sell your business.
All the associates at Epsilon are experienced professionals that have been involved in selling companies across a wide range of sectors. They can value your business based on scenarios brought out in our fact finding stage of engagement. Our negotiation team will work with you and potential buyers to get the best value, and our associated legal teams will ensure that the contractual side provides the value to you and your team. My final tip. Selling your company is probably the biggest transaction you will make. Often out weighing the sale of a property. Do not under estimate how complex the transaction will be and how much time it will take, we don’t.
EPSILON IN NUMBERS
Achieved exit values of up to
22 x EBITDA multiples
Each partner never exceeds
3 clients simultaneously
Average exit value across all