Selling a business is a significant milestone for business owners, and it can be an emotional and complex process. Whether the owner is looking to retire, pursuing a new opportunity, or simply a desire for liquidity, there are several key factors to consider in advance of entertaining a sale. The goal is to ensure that the owner will get the best value for their business while also minimizing potential risks. Here are several key moves for success when preparing to sell a business.
Understand the Why
Many times, owners don’t fully contemplate their reason for selling, they just want to sell. The problem is that a lack of clarity in the reasons for selling can lead to unrealistic expectations and/or the use of the wrong strategy for selling the business. For example, the owner’s appetite for post-sale involvement can dictate the type of buyer that may be best suited to accomplish the owner’s objective. Should the owner be looking to stay involved in the business moving forward, this positions the business well for a potential private equity buyer, which often likes to see owners’ continued involvement after a sale and reinvestment from the owner. Whereas should the owner desire to exit the business at, or shortly after a sale, then a strategic buyer may be better suited.
Assemble a Team of Professionals
Business owners should not try to sell their business on their own. The sale of a business is a complex process that demands all types of domain expertise. There are many moving parts of a process that must be managed, which can take away the owner’s attention from running the business. Plus, significant mistakes can be avoided with experienced advisors. Establishing a team of experienced advisors, upfront, is vital to a smooth sale transaction process. Key professionals to consider when establishing this team include – investment bankers, M&A attorneys, accountants and wealth managers.
Prepare Financial and Legal Documentation
The devil is in the details. Buyers require a detailed review of financial records and legal documents during their due diligence. Getting organized and your “ducks in a row,” before entertaining a sale can help prevent any complications or delays during the due diligence process. For example, it’s not uncommon for founder-owned companies to not have the financial reporting processes in place that assure GAAP-compliant financial statements. In this scenario it is best practice to undergo a quality of earnings (QoE) analysis, with a reputable third-party accounting firm, to establish accurate financial statements before going to market. This will help alleviate any issues during financial due diligence by getting financial statements “market ready” and will help your advisors create a compelling narrative around the financial performance of the business.
Matt Gladdish, director at Hyde Park Capital, supports the firm’s mergers and acquisitions, private capital raising and corporate finance efforts across a variety of industries – with a particular focus on industrial and business services. He holds the Series 79 securities license for Investment Banking Registered Representatives and takes pride in driving maximum value and finding the right partner, either strategic or financial, for Hyde Park Capital’s clients. Mr. Gladdish graduated with a B.S. in Finance with a Business Management minor from the University of South Florida.
Gladdish is involved as an advisory board member of GrowFL, an organization dedicated to supporting and accelerating the growth of second-stage companies in Florida. He also serves on the board of the University of South Florida’s Student Managed Investment Fund, an equity portfolio of the university’s endowment that provides hands-on investment management experience to students in the Kate Tiedemann School of Business and Finance.
Gladdish is a Florida native and enjoys spending his free time outdoors, whether in the woods or on the water.