Five Things to Consider Before You Start the M&A Process

If you are thinking of selling your business – now or sometime in the future – advance planning is key to help clarify your options, increase your valuation, and significantly improve your chances of successfully closing your transaction. Below we’ve outlined five key issues to consider as you begin to plan an exit:

One: Be clear regarding your goals. As you begin to consider a sale, take the time to consider, clarify and prioritize your personal and financial goals, and educate yourself on the sales process. Why do you really want to sell the business? How do you see your life post-sale? How much money do you need from the sale, and does that realistically match the value of your business today? Would you like to continue to work for a buyer, after the sale? Which of your goals are most important to you? 

Entrepreneurs who bring a level of confidence and self-awareness regarding their goals often glide through the sales process. Owners who are not clear about their goals or have underlying or unexpressed concerns about the sale sometimes vacillate, add stress, or take too long to make decisions. And remember that selling a business is both a financial and emotional decision. Advisors often focus on the financial aspect of the transaction, but it’s also important to recognize and address that it also heralds a major life change for the founder. An exit plan that identifies and prioritizes all your options and goals can help you work through these issues.

Two: Continue to drive revenue. As a general rule, businesses that are showing growth are more attractive to buyers, and sell for a higher valuation. Buyers expect the growth to continue, which should generate higher potential future revenue, drives a willingness to pay more for your business. With a potential sale in mind, it can be tempting to scale back business development efforts, wait to enter new markets or distribution channels, or hold off on exploring new initiatives. It's important the buyer knows that there are easy and clear ways for them to continue to build the business after the acquisition. But at the same time, nothing ensures your transaction will get over the finish line than having a buyer see sales continue to increase during the sales process. So this is not the time to take your foot off the gas, but to rally your team to drive business performance, knowing there is light at the end of the tunnel.

Three: Put yourself in a buyer's shoes. As you prepare for a sale, take an honest look at the company and think about the business from the buyer's perspective. What are the key advantages of the business, and what are the key challenges? Almost every business has challenges that could be perceived negatively by a buyer. Some issues could include, for example, customer concentration, limited trademarks, high customer acquisition costs, or more. To the extent possible, try to resolve issues that can be fixed, or when that's not possible, be prepared to address challenges with a buyer.  

Four: Execute the sale professionally and strategically with a team. Selling a business can be a challenge. But on the other hand, it’s not harder than starting, building and successfully running your business. As successful entrepreneur, you already know how to navigate uncertainty, and how to identify and hire people who can help you. To sell successfully, draw on these traits, educate yourself, and build a team of experienced advisors to sell the business professionally. In addition to an experienced M&A advisor or investment banker who can guide you through the process (which is what we do here at Hughes Klaiber), you'll also need an attorney who specializes in mergers and acquisitions, (we have worked with many great attorneys and can make introductions if needed) and an experienced CPA who can advise you on your personal tax implications associated with the transaction.

Five: Time the sale of the business well. To maximize valuation, the best time to sell is when your business is growing, when you are personally ready for the sale, and when buyer demand is strong. It can be challenging to determine the best time for a sale, and difficult to consider an exit when the business is on an upswing, but if you are considering a sale and are clear regarding your goals, don’t wait until sales slip.

Executing these five strategies within the context of an exit plan can help drive up the value of your business. If you are considering a sale, please reach out to us. We are available to answer your questions, provide suggestions and help you understand the sales process.   Schedule a call.  

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