Yes – we can sell your business this year. At the time of writing, we have two businesses under contract. One went under contract in 18 days; the other in 44 days. The key? A defensible, market-based valuation. Organized financials. Preparation.
Not sure where to start?
Perhaps you are wondering how much your business is worth, what the current market is like, or what to expect?
Rest assured, there are buyers quite actively searching for businesses to acquire. You may not realize, but many private equity and search funds only have access to capital for a certain time period. If they don’t find a suitable business (target) within 2 – 3 years, they have to return the capital to their investors. On top of this, they only earn a “management fee” when the capital is deployed / put to use.
Another important point to keep in mind – the stock market may value Amazon differently than it did a year ago, however, small to midsize businesses generally sell at a multiple of 2.0x – 5.0x trailing twelve months cash flow. This range has been remarkably consistent over decades.
Businesses are selling. The key is that the business is of quality AND priced appropriately. If you are considering selling, now more than ever, professional representation and guidance matters.
In initial consults with owners, I always mention that we have to ensure your business value is 1) reasonable and 2) defensible. As an example, we reviewed 50+ water damage business transactions and spoke with 3 commercial lending experts in assessing the value of a business we sold recently. Similarly, for a pet business we sold we looked at ~70 transaction comps. This investment of time in financial statement analysis, along with a review of your operating model, greatly increases the probability of a successful sale.
I encourage you to review the most recent quarterly survey on private business sales from the International Business Brokers Association; it has insight by transaction size into market multiples, deal structure, time to close, and commentary on the market from hundreds of Business Brokers and M&A Intermediaries. We are proud, long-running members of the IBBA. It is the premier organization for business brokers and transaction experts. For context, there are ~2,500 members nationally.
Take a look:
Want to discuss your business, the sale process, valuations, or the market?
Reach out for a confidential, no commitment chat. You will come away with knowledge and concrete steps to immediately improve the value of your business (whenever you choose to explore the sale process).
Still mulling over how to proceed and what is best for you? Some considerations..
First, are you ready to sell?
Is it your true and honest motivation? For some this is a straightforward “yes, let’s go!” and for others this requires much soul searching and reflection with loved ones or potentially your business partners. Being clear on this will save you a great deal of mental energy and time.
Second, keep your intent to sell confidential from employees and suppliers
Quick story to illustrate this point. I grew up working in a family-owned bakery in Ohio. We had a key supplier for the flour, sugar, shortening, baking mixes, icing, etc. that we relied on heavily to crank out 100+ different menu items each day. Most weeks my family simply called in the order we needed (no internet in 1991!). However, every three weeks or so “Bob”, our account manager, would stop by for a visit and to shoot the breeze. Bob was a gold mine of information on what mixes were / were not selling, products that competitors 150 miles away were experimenting with, and the health of other bakeries across the Midwest. My family ended up buying a bakery that Bob first alerted might be interested in selling. The lesson: people talk.
It is critical to keep your plans confidential. It is ok to keep your plans from employees that have been working for you for 20+ years. In fact, keeping your decision to sell private is foundational to your ability to sell the business. Losing key employees decreases the value of the business and will concern potential buyers.
Third, take a close look at your business
What do you think needs to be improved before selling? Some of these items may be small or inexpensive to knock out. Others may require more time, money, or sustained effort. Before acting on any of these – rank improvements in terms of impact to the value or health of the business.
There may be other outside factors behind your decision-making process, perhaps you have health or financial issues and are thinking about selling “as is” – this is fine too and almost always manageable.
Next, are you working in your business or on your business?
There is a world of difference between the two! Prospective buyers will seek to assess the extent to which you “are” the business vs. managing a business. At Washington Business Brokers we carefully probe the extent of systemization, processes, and documentation in each area of a business as it helps to support a defensible valuation and strong negotiating position as we approach the sale process.
Along these lines, here are some key “north stars” that we share with business owners as we begin the go-to-market process:
- Continue operating like you are going to be there for the next 5 – 10 years. Proceed with key hires, equipment purchases, supplier contracts, signing new accounts, etc.
- Continue the track record of growth as it is highly attractive to buyers; it is important you not only maintain but work to continue to grow the business. The selling process takes time, once we get into LOI’s (Letter of Intent) and Due Diligence we will be sharing quarterly, perhaps monthly, financials with a buyer. If a buyer starts to see growth taper off or revenue decrease it will invite questions.
- To the extent possible, get yourself out of the day-to-day operations. Concentrate on strategy, vision, and execution. Reflect on your weekly activities for dependencies that employees, customers, or suppliers may have related to your role.
- Review your accounting and financial systems to ensure they are in working order. Minimize running personal expenses through the business and think about showing higher profit (pay more tax). Why? Buyers and banks love this. It works to your advantage as an owner / seller as you will ultimately benefit from a higher valuation multiple.
In addition, other questions we cover before embarking on the sale process include:
- How would you describe your role in the business? Could you take a 1-week vacation and the business continue to run without you?
- Tell me about your senior folks. Describe their roles, years with you, decision making authority, and anything you believe is relevant.
- Any prior or pending litigation?
- Do you have additional legal entities registered with the State? Any revenue / expenses in the other entities? Do you intend to hold onto any of these entities? Confirm ownership of each legal entity.
- Any key trademarks, copyrights, licenses, or patents? If so, do you intend to include these in a sale?
- Help me understand your market and key channels. Market size as well as your competitive and product position.
- Do you own or lease your space? If you own it, do you intend to keep the real estate after selling the business? Is the business paying market rate rent for the space? If you lease space we will want to review your lease early into the process and may need to have a call with the landlord / owner of the facility to explore leasing scenarios with new ownership.
- Do you have any non-negotiable deal terms or business valuation considerations we should be aware of?
You are probably beginning to see the benefits of enlisting a professional business broker to get an objective view of your business, improvement areas that you may have overlooked, what to expect in the selling process, and potential goal posts on a value range.
What should you expect when selling your business?
In most business transactions it is ideal to know what to expect before beginning. So what should a business owner expect when selling their business? At a macro view there are three, high-level steps:
This includes organizing required documentation, reviewing financial statements and business tax returns, insight into the operating model and any unique business characteristics (product, sales channels, marketing, customer base, supply chain, etc.). As your business broker we prepare three deliverables in this step:
- Value assessment based off an in-depth analysis of your financials and private market comparables
- Blind business profile. This is a 1 or 2 pager that masks the identity of you and the business; it is used to draw interest from prospective buyers. Our team vets each prospective buyer after they have completed and signed a non-disclosure agreement
- Confidential Business Review (CBR). Also referred to as a “marketing package”, this document reveals the identity of the business and goes into detail on the financials, SWOT analysis, and operating model. For context, these can range from 10 – 60 pages in length depending on the size and complexity of the business
This kicks off when your business is ready for market. We execute a targeted, confidential plan to engage qualified, strategic buyers. This includes:
- Showcasing your business on a number of different business for sale and industry specific platforms
- Pinging active buyers (owner operators, private equity shops, and investment offices)
- Proactive outreach to targeted buyers
- Tapping our network of seasoned brokers, CPAs, SBA lenders, and other deal professionals
Negotiation, due diligence, and closing
- We bring negotiation and transaction expertise to the Purchase Sale & Agreement process. In fact, terms are often more important than price. At Washington Business Brokers we have 225+ terms / clauses used in previous transactions to draw from
- We coordinate efforts across the team of buyer / seller advisors
- We help you avoid obstacles to a successful sale
It sounds straightforward, right? The keys to navigating the sales process are strong systems and experience. I’m referring to process expertise compiling documentation buyers will expect to see, valuing a business, confidentially marketing it, screening buyers for both fit and financial capacity, as well as in negotiating and closing. I invite you to read more about this domain expertise on our Services page.
That is it for today – more to come in a future post. Please forward or share this content if you find it valuable. As always, thank you for reading!
At Washington Business Brokers we are experts in valuation, optimizing a business for sale, buyer identification and qualification, negotiation, deal structuring, and closing.
We do not sell you on selling your business or buying one. Instead, we listen, provide options and expertise, and ultimately partner with you to accomplish your goals. We will be ready when you are.
If you would like to better understand the value of your business or learn more about the process of confidentially selling:
Conversations are always confidential and there is no commitment. We will be ready when you are!