Time and time again over the past few months, everyone who operates in the transactional space – attorneys, accountants, bankers and advisers – is saying the same thing: The current market for businesses of all sizes is very hot. This means companies with a solid earnings history are seeing terms that are very seller-friendly.
Is this the right time for you to consider selling your business in order to maximize the return on all of the time and effort that you have put into building your business? For each business owner there are many things to consider and, quite likely, many steps to take in answering that question.
Of course, the first consideration is whether to sell at all. For a family business there are always issues of succession and passing the business down to the next generation. But if that poses potential problems, such as the capabilities of those who would take the reins or competing interests among family factions, a sale now might be in everyone’s best interests.
Regardless of the reason for the sale, another initial consideration is determining the value that your company might bring in a sale transaction. Even in a hot market (or sometimes because of it), there can be a gap between what ownership believes is the value of the company and what buyers will actually pay. Different buyers may also have different reasons for valuing your company lower or higher than your expectations. A financial buyer (i.e., one not operating in your industry) might wish to reduce the price due to a concentration of sales with few customers that it views as a risk, while a strategic buyer (one operating in your industry or in one complementary to it) might share your lack of concern due to its greater knowledge of those customers and be willing to offer a higher price to gain access to them for its other product lines.
Buyers also look at the “quality” of your earnings and subtract out (or deeply discount) one-time or other sales that are likely to be nonrecurring. Doing an in-depth analysis of your business with your current accountants or, if appropriate, another accounting firm with good experience in valuations, will help sort out these various factors and their impact on your company’s valuation.
If you feel that your company may achieve a high value ,an important next step is to get your company’s house in order. This means ensuring that appropriate agreements are in place with employees as to confidentiality, noncompetition, bonuses and equity. Verbal arrangements with employees, customers, suppliers and vendors should be documented if advantageous to the company. Insurance, permits, licenses and other operational requirements should be reviewed and updated as needed. Good legal counsel familiar with sale transactions can help you with these.
The decision to sell a business is multifaceted and the steps to take are many. But if you are ready, the market may very well be ready for you to make your move.