Stephen Covey’s second habit of highly effective people is to “Begin with the end in mind.”
You have to admit, that’s sage advice. Before you can plan how to get there, you have to know where you’re going. And while this advice may be a revelation for many people, I think it’s a concept that most business owners get, whether they are aware of the late leadership guru and his best-selling book “The 7 Habits of Highly Effective People” or not.
In fact, I think it’s fair to say that literally every owner of a small to mid-sized business has a vision for the future of their business that involves some sort of ownership transition or exit strategy. It might be passing the business on to family members, or business associates, or selling the company outright.
The next question, of course, is when is the best time to sell? The answer can depend on a number of internal business factors. But one critical external factor is the M&A marketplace, which putting it mildly, is very receptive to deals right now.
So if your business is ready, the M&A marketplace is waiting for you. In fact, we are in the ninth year of a bull market, which many people think might last another couple of years. Interest rates are low, acquirers are flush with cash, and businesses valuations are at all-time highs. That could spell success if you are contemplating an M&A transaction.
If you are planning to sell your business, here are six important questions to ask yourself:
Is the business growing, with increasing sales and earnings?
You will always get more money for your business when it’s performing well. The key is to sell when your business is on top.
Do you have a strong backlog of business that ensures future sales and profits?
Buyers want as much assurance of future sales and profits as possible. Having a significant backlog of orders from a diverse range of clients provides comfort and security to potential buyers and boosts value.
Do you have a solid management team in place?
Buyers value a strong team and understand its importance to the future success of the company. Having strong leaders in place also contributes to higher valuations.
Do you operate in an attractive market?
If the market for your services or products is booming, or if your company provides a unique product or service, your company will command a higher price. Buyers are attracted to successful businesses that could easily provide access to growing markets or that serve a lucrative market niche.
Have you developed a transition plan?
Business owners who plan are more successful than those who don’t. If you wait until you are ready to sell, you are generally at least one year too late. In today’s market it takes 9 to 12 months to sell a company and to maximize the return to the sellers.
Do you understand the sales process?
Selling a company is a complex undertaking. Make certain you get good professional advice and understand both the opportunities and the pitfalls. Knowing the sales process enables you to stay focused on operating the business – which should remain your top priority during the entire sales process.
If you are thinking about selling your business, ask yourself the six questions listed above. Identify where your business falls short, and address those weaknesses before you attempt to sell your business. It will make the transition easier, and your company more valuable.
Develop a transition plan. Even something as seemingly simple as passing the business down to the next generation requires a plan. Are your family members capable of taking over? Are they even interested in the business? If not, do you have a “plan B,” perhaps a partial or complete sale to a third party?
We’ve all heard forms of this famous saying, “If you fail to plan, you are planning to fail.” If you need help planning, seek the advice of a professional M&A advisor who is experienced in helping business owners through this important transition.
Selling a business is one of the most important decisions a business owner will make. You’ll only have one chance to get it right. So heed the words of Stephen Covey, and make sure your company is ready for a successful transaction. A red hot M&A marketplace awaits.
At Allegiance Capital, we want you to know what you’re getting into when you sell your business. We view educating prospective clients as one of the most important things we do.
We like to begin our process by offering a free book called Street-Smart Moves for Selling Your Business by Joe Aberger. It’s brief, well-written, and addresses 29 topics that are critical to selling a business like yours. Be sure to Sign Up Now.
And, in the meantime, if you have questions, feel free to call me at (214) 217-7732.
About the Author
David J. Mahmood
Founder and Chairman
Phone: (214) 217-7750