Having worked with middle market businesses for many years, I’ve seen firsthand how proactive planning can make the difference between a mediocre deal and a stellar one when it comes time to sell a business. It’s not just about getting the financials right—although that’s critical—it’s about anticipating potential challenges, highlighting your company’s unique value, considering your alternatives, and positioning your business to attract the right buyers.
For companies looking to sell in the months or years ahead, there are several crucial elements of proactive planning to consider:
- Clear Business Objectives:
Before embarking in an M&A transaction, clearly define your objectives. Do you want to exit the business completely or are you looking for a partial sale or merger? Do you wish to remain with the business for an extended period post-merger or simply to facilitate the sale? Understanding your end goals will guide your preparations and decision-making throughout the process.
- Solid Financial Reporting:
Your financial statements will be under heavy scrutiny during an M&A transaction. Ensure that they are not only accurate, but also paint a favorable picture of the company’s performance. This means investing in audited or reviewed financial statements by a reputable accounting firm (such as RS&F). Additionally, the financial reporting should be aligned with non-financial market, sales, and staff information. Clean, understandable financials can significantly streamline negotiations and mitigate a potential price reduction or failed deal.
- Operational Efficiency:
Efficient operations reflect positively on a business’s management and its potential for profitability well into the future. Invest time in streamlining processes, optimizing supply chains, and ensuring your technology infrastructure is up-to-date. Additionally, consider benchmarking your operational metrics with available data about high-performing competition.
- Identify and Mitigate Risks:
Every business has risks, whether they’re operational, financial, or regulatory. Anticipating these risks and having mitigation strategies in place can be a significant selling point. It demonstrates prospective buyers that the company is resilient and prepared for potential challenges. Further, mitigating your business risks will help a buyer get comfortable that they are reducing the risk of their investment in your company.
- Invest in Your Team:
A strong, cohesive team, particularly at the management level, can be one of your biggest selling points. Retain key talent, ensure that knowledge isn’t siloed with just a few employees, and develop a company culture that will be attractive to potential buyers. Additionally, consider financially binding your key employees to the company to align their success with that of the company.
- Understand Your Market Value:
Engage with experts and conduct a preliminary business valuation, either formally or informally. Knowing where you stand in the market can help you set realistic expectations and focus on areas that need improvement to increase your business’s value in an M&A transaction. Note that your market value may differ depending on the nature of the buyer.
- Establish a Transition Plan:
Buyers want assurance of a smooth transition post-sale. Whether you intend to stay on for a period or hand over the reins immediately, have a clear transition plan in place. This not only eases potential buyer concerns, but also ensures that the company’s operations remain stable. A viable transition plan also helps to comfort employees who may be concerned with their post-transaction status.
- Invest in Growth:
Even if you’re thinking of selling, continue to invest in growth initiatives. A company that is growing and innovating is far more attractive than one that’s stagnating, even if the latter has strong past performance. Additionally, investing in growth is an insurance policy for you in the event an M&A transaction fails or is delayed for any reason.
- Engage Experts Early:
Whether it’s M&A advisors, accountants, financial advisors, or legal experts, get them on board well in advance of a transaction. They can provide invaluable insights, help you navigate challenges, and ensure you’re taking all necessary steps towards a successful sale. Additionally, they should be comfortable with each other since an M&A transaction is a team effort.
- Clear and Transparent Communication:
Transparency is vital with potential buyers, employees, lenders, investors, or other stakeholders. While it’s crucial to keep certain information confidential, being upfront and honest about your intentions and the company’s prospects will build trust and facilitate smoother negotiations. On the contrary, the lack of transparency could make a prospective buyer skeptical about the future prospects for their investment.
In summary, the road to selling a business is filled with nuances that require careful planning and foresight. However, with the right proactive approach, companies can position themselves favorably, ensuring not just a successful sale but also the legacy and future of the business. Remember, it’s not just about getting to the finish line—it’s about doing so in a way that realizes the maximum value and potential of your hard-earned enterprise. The investments you make into this process months and years in advance will pay off in the future.
Managing Partner, Jeffrey S. Rosen, CPA, CGMA, MBA