Having a clear goal and ‘why’ when selling your business will help ensure you get a deal and exit terms you can be happy with
Key Takeaways
- Selling a business is not always easy, especially for business owners who spent years working on their companies
- When looking for a buyer, you should keep a few things top of mind, including the reasons you are selling and how you wish to exit the company
- Deals often involve a lot of moving parts, and things may go wrong at any time
- Having the right advisors by your side will make things 10-times easier — it is always a mistake to think you can do it alone
Building a business is an arduous task that takes years and costs money. At the same time, it can be one of the most fulfilling experiences of your life. Business owners often get attached to their businesses due to all the wins they achieved and challenges they overcame, but everything that has a beginning has an end.
If you are juggling the idea of selling your business, there are a few things to consider. Sure, you want the best deal that will reward your efforts, yet it can be quite difficult to give up control.
As a first step, you must ask yourself why you want to sell your business. This gives you a clear perspective and allows you to figure out the how. Once you understand why you want to sell your business, you can get the right professional advisors and get to work on finding the right deal.
Brace yourself when looking to sell
Sellers can get quite emotional when negotiating the sale of their business. This is because many business owners consider their companies to be their babies. If you have already decided to sell your company, then you should keep in mind that things may go wrong along the way.
A deal can easily fall out for one reason or another. Maybe one buyer does not want to pay the full value of the business and backs out just when you are ready to sell. In such instances, it is important that you are level-headed and do not let the stress get to you.
It is also important to figure out what you want from the business transaction. Do you still want some control over the business? Knowing this will help you make the right decisions when there are setbacks or challenges.
Know why you want to sell your business
You should know what you are looking for even before you set out to start negotiations. This is often different for every business owner. As Fred Silberstein, President of SF&P Advisors, asks: “Are you looking for a partner to fuel your growth? Is it a cash-out strategy? Are you looking to retire?”
When you can answer those questions, then you can look for appropriate ways of selling your business that meet those goals. Here are three other things to keep in mind when relinquishing your business:
1. Selling to private equity firms
It is important to note how selling a business to a private equity firm (PE) will impact the company. PE firms are not always looking to recreate the wheel when they buy your business. They make their investments based on the customers and the workforce in your organization.
PE firms want to buy an existing business that generates an attractive cash flow. They do not want employees to leave, and they want access to the same business opportunities you have as the current owner. According to Silberstein, PEs “take the companies. They increase the revenue, they increase the profits, they add to it, and they try to make it bigger. Then they sell it to another private equity firm, and the circle just keeps going on to the next guy, who’s going to continue to have that organic growth and maybe have the acquisition growth.”
Selling to a private equity firm is a great option when looking for a partner. Such a partnership can improve your liquidity, for starters. If you want to grow but still be part of the business, you may want to think of this option.
2. Consider mergers and acquisitions
Another option when it comes to selling your business is a merger or an acquisition. An acquisition is more of a buyout, but a merger is more of a partnership. With a merger, you join your business with another business, but you may not relinquish your entire business. You also have some degree of control depending on the terms of your negotiations.
Acquisitions occur when one company seeks to take over the operations of another. If you are a business owner that wants to relinquish complete control of your business, then this is a perfect option. If you have the right team of professionals beside you, you can get a good return on investment and exit the company with clean hands.
3. Use service contracts before relinquishing your business
One way to prepare for selling your business is to start creating a service contract base. This is done through the use of service contracts. A service contract is simply an agreement with a third party to perform certain tasks for your organization. This means that you won’t get a call when your client breaks their air conditioner or something. Instead, they call the person they have the service contract with.
Having a service contract base helps when selling your business. If you want to be attractive to buyers, it is prudent to build the team underneath you. Having these strong structures will reduce the operational risks for acquiring companies after they have completed a deal.
Let SF&P guide you through the selling process
One of the main problems many contractors make is thinking they can go on it alone when selling their business. They make mistakes by approaching PE firms or other firms directly without any professionals watching their backs. In turn, they get a half-assed deal and must live with regret.
You should get the services of savvy dealmakers, such as SF&P advisors, who have tons of experience under their belt. With a great team of professionals, you can rest assured that you will sell your business the right way. Contact us today for a quick consultation.