Our breakfast seminar, “Navigating the Path to a Successful Exit,” brought together five experienced professional advisors, who shared insight into how to best prepare for and execute a sale of your business.
Participants included Sally Anne Hughes, M&A advisor and founder of Hughes Klaiber LLC; Lori Smith, M&A attorney and partner with Stradley Ronon; Mandeep Trivedi, CPA and valuation partner with Citrin Cooperman; Rich Prestegaard, head of business development with private equity firm Freeman Spogli; and Andrew Reid, EVP with global PR firm Weber Shandwick.
The panelists discussed the stages of a sales process, and shared insights from their experience in avoiding pitfalls and overcoming hurdles to successful exit. Here are twelve key takeaways to consider as you plan for the sale of your business:
1. Get Your House in Order. Is your business ready to be sold? An offer could come at any time. Run your business to be ready for a sale. Most importantly, prepare and maintain quality financial statements and records that are organized, accurate, easy to understand and ready to withstand scrutiny from a buyer and their accountants. Also ensure you are in compliance with all regulations, including wage and hour requirements, withholding taxes, sales taxes and data privacy controls.
2. Are You Ready for A Sale? Develop and understand your priorities in the sales transaction and beyond. M&A can come with trade offs. A sale can bring significant financial rewards and other upsides, but are you ready to let go of the company you’ve started and grown? Regardless of whether you continue to run the business or turn the reins over to someone else, your professional and personal life will change when you sell. Plan for changes after the sale.
3. Know What Buyers Want. Strategic buyers often make acquisitions to help achieve their larger corporate growth strategies. If you speak with a strategic buyer, work to understand how and why your business fits into their growth plans. Private equity firms acquire both platform investments and add-on investments to complement an existing platform investment and generally look for the seller to retain some equity until a future sale. Family offices are increasingly focused on middle market opportunities and may have longer-term horizons to exit than private equity. Independent sponsors seek to raise financing for each transaction and may work in conjunction with another private equity firm or investor.
4. Valuation. Many buyers value businesses on their expectation of future cash flow from your business. To enhance valuation in a sale, consider how to position the business well for future growth AND how to minimize risks associated with cash flow. This means you need a plan for growth AND a plan to address any issues that could negatively impact cash flow, such as customer concentration, supplier concentration, or risk a key employee may leave.
5. Disclose Issues Up Front. Buyers don’t like surprises. If your business has challenges of any kind, disclose them early.
6. Don’t Be Swayed by Uninformed Opinions on Valuation. Everyone has a friend or acquaintance who knows someone who sold their business for an astronomical valuation. Don’t believe what you hear on business valuation through the grapevine, in trade press, or from your friend who works at a hedge fund. The information is often inaccurate or includes some type of major earn-out contingent on increases in sales. Get educated on a realistic valuation for your business.
7. Surviving Due Diligence. Be prepared to answer two key questions: “Do you own what you say you own?” and “Do you make what you say you make?" Are your reported earnings accurate and are projections based on reasonable good faith assumptions?” Follow an organized process to share data and answer questions. Stage release of highly confidential information (client lists, trade secrets, etc.) towards the end of the process.
8. Keep Your Eye on the Ball. Declining business performance during the sales process can kill your deal. It’s critical to ensure your business continues to perform financially while you navigate the process to sell.
9. Greed Kills Deals. If you get a reasonable offer and the transaction is progressing smoothly, don’t fall into the trap of worrying about leaving money on the table. If you’re ready to sell, have a strong offer and a qualified buyer…don’t blow it by inflating your expectations. Time is generally your enemy when seeking to complete a transaction.
10. Structure for Tax Efficiency. Taxes should be addressed early in deal discussions, as they can impact actual proceeds to you as seller as well as have implications for the price a buyer is willing to pay. Evaluate the tax implications of the transaction and incorporate tax planning into the deal structure utilizing strategies to focus on capital gains treatment vs. ordinary income when possible.
11. Understand the Market. Understand the valuations in your industry and what buyers in your industry are looking for.
12. Build A Team. Choose experienced advisors. An experienced team of qualified advisors can help ensure you find the right buyer, negotiate the transaction successfully, avoid hidden pitfalls and achieve an optimal outcome.
Hughes Klaiber is an experienced investment banking firm. We guide entrepreneurs through every step of the process to sell a business, from initial planning to a successful exit.
Please contact us for a confidential call to discuss the current M&A market, the process to sell your business, valuation ranges, and other areas to consider as you make decisions regarding a possible sale of your company. Schedule a call with us here, or drop us an email.
646-654-0458
info@hughesklaiber.com
1185 Avenue of the Americas
Third Floor
New York, NY 10036
