I was off last week attending a great tennis tournament in Indian Wells, CA. So, no blog last week. But while I was there, I met an interesting fellow who had built a profitable business over nearly 40 years and was thinking about selling it and retiring (whatever that means). He asked me what he should know before approaching an investment banker or business broker, so he won’t sound uninformed. I sent him my list of 10 things to think about and offered to help him prepare. He may or may not take me up on it, but I thought it would be a useful subject for a blog post, so here’s my list:

1. Understand the true value of the business: In order to sell a business profitably, the owner needs to have a clear understanding of the true value of the business. This involves assessing the company’s financial condition and market position to determine the business’ overall value.
2. Plan the sale ahead of time: A well-planned sale can maximize the value of the business and ensure a smooth transition. We tell clients to start the process 2 to 5 years ahead of time, depending on the condition of the business.
3. Select the right buyer: Choosing the right buyer who has the resources, experience and vision to run the business can be a crucial aspect of selling a business. This can be very different if the buyer is a financial buyer, a strategic buyer, or someone wanting a lifestyle business.
4. Negotiate the deal effectively: Negotiation is critical when selling a business. The owner needs to be able to negotiate effectively in order to get the best possible terms for the deal, while also satisfying the buyer’s requirements. This is where the broker or banker earns their fees.
5. Seek professional help: Selling a business can be a complex process, and it is often helpful to seek professional assistance from accountants and, lawyers. They can help with tax strategies and legal matters, such as ensuring legal compliance and mitigating risks.
6. Maintain confidentiality: Confidentiality is critical when selling a business, as leaks can negatively impact the company’s reputation, employee morale, and customer relationships. Owners should use non-disclosure agreements when sharing sensitive information.
7. Create a strong marketing plan. The right advisors will help the seller emphasize their unique selling proposition, financial performance, and growth potential. This is a key area of preparation in which the banker or broker can be a critical member of the team.
8. Be prepared for due diligence: Due diligence is a critical step in the sale process, where the buyers ask all the hard questions. They will look for ways to lower the price, so owners should be prepared with accurate documentation, and address any potential issues before the buyers find them.
9. Plan for post-sale transition: Assuming the seller doesn’t want to remain after the sale, they should plan for a handover period, where they can train the new owners, introduce them to key stakeholders, and provide ongoing support and guidance.
10. Have realistic expectations: Owners should have realistic expectations about the timeline, valuation, and terms of the sale, and be prepared to negotiate, perhaps compromise, but still be protective of their interests, including the possibility of walking away from a deal if it’s just not right.

How do we know this stuff? We’ve done it a few times, and we’re still doing it.

We are Your CFO for Rent.