Goering Center news: Selling your business successfully

By Scott L. McRill

Don’t get me wrong — I’m not saying your business is a pig. I’d never say that; I know it’s your baby. But we’ve all heard the expression “putting lipstick on a pig.” It just doesn’t work. Unfortunately, many sellers do just that, short-cutting the preparation process, relying on the perceived “country club” value of their business and rushing to market. Instead, a seller should perform due diligence to better understand the true value of the business.

These five steps will help you succeed during the sale process.

Do some soul-searching to decide if you really want to sell. Many sellers neglect this first step and cause unnecessary heartache for themselves and potential buyers. Some sellers literally walk away at the eleventh hour when reality hits them.

Selling a business may create a void for the owner. Prior to selling, ask yourself:

• What do you plan to do with the money from the sale?
• Is it enough to live on?
• How will you spend your days?
• Do you have philanthropic interests?
• Do you have hobbies?

Consult with your family and your business advisor to make sure you’re emotionally ready to sell.

When ready to sell, ask a trusted advisor, generally your attorney, accountant or banker, to help you develop a team of experts. Teams should have accountants, lawyers, wealth advisors and investment bankers to provide deep transaction experience.

Do not fly solo during this process. Leverage an experienced team who “do this stuff for a living” and have the right skills for the job. Without a qualified team, you can lose control over the sale, suffer a significant erosion of transaction value and experience a completely failed process.

You need to build a management team. Although many entrepreneurs run a lean operation where they are the key person that generates new business and promotes operational efficiency, it is best to build a management team that can successfully run the company once ownership transitions.

A professional management team allows key customer and vendor relationships to continue after you have sold the business. This reassures buyers that the business will continue to prosper after the sale. In the absence of a professional management team, the buyer may hold back a significant portion of the purchase price.

An external team of experts can streamline the process of helping you get your house in order. This external team can help in multiple ways including locating and organizing key documents (such as articles of incorporation, by-laws, minute books, S-corporation election, tax returns, financials and insurance policies) through performing sell-side quality of earnings to understand the true cash flow potential of the business. It may sound silly, but you wouldn’t try to sell your house without making sure it was clean first. This same common-sense approach should apply to your business.

Proper preparation and help from experts will enable you to control the sales process. Remember, whoever controls the process maintains the upper hand during negotiations. Be sure to set the right tone and signal that you have control of the sale. Fix what you can before entertaining potential buyers. Set and manage expectations along the way. With appropriate sell-side diligence, you will be prepared to respond with control to buyer diligence inquiries. Be methodical and release information only as dictated by the stage of the process — less information during the indication of interest phase and more information after a letter of intent with exclusivity is in place. Hold highly sensitive, confidential information to the end.

By following these five steps, you’re more likely to get the price you want for your business instead of settling. You’ve spent a good part of your life meticulously building your business; you should be equally meticulous when selling your business. This thorough preparation approach is a better strategy than simply making the business look better by applying lipstick.

Scott L. McRill is a shareholder at Clark Schaefer Hackett providing mergers and acquisitions expert guidance. Reach Scott at slmcrill@cshco.com or 216-413-3704.