You have been running a tech or other company for years. You are an expert in running it. You understand your market niche, competitors, and channel partners.
But running a company and selling it are as different as fish and fowl. It’s a huge decision and one that shouldn’t be taken lightly. Here are four questions that will help you know if your company is even ready to be offered for sale.
1. Is the business positioned for/ready for a sale?
To answer this question, start from the standpoint of a potential buyer, not your standpoint as the seller. Why would they want the business?
Does a buyer want to capture a new market or a new capability? Could a company want to buy you as a cash cow, or perhaps your company has been a supplier or partner, and the suitor is looking for vertical integration.
A business can be ready for several reasons: profits, a unique market position, excellent processors, procedures, and systems; growth; future potential value; and more. It is vital to understand your economic value to potential suitors.
2. Are you ready to sell?
Selling a business is disruptive. It will take between six and 12 months, on average, to sell a business. It will take an enormous amount of prep work to present the company properly as a viable entity from a financial and marketing standpoint. The business must have a clean set of accurate and organized financials that match your tax returns.
In addition, selling a business is a financial and emotional decision. You will no longer have control once you sell, and there will likely be an earned buyout. Plus, if you have other shareholders/investors, are they ready to sell, and do they feel it is the right time? In addition, if you sell, will key personnel stay? All stakeholders being on the same page is preferable but often challenging.
3. Is now the right time for you to sell?
Beyond your personal timing, the market timing may be or may not be right. Maybe your industry is hot right now, and you want to take advantage of that. Or perhaps you need to sell to drive your business to the next level. There are many factors to consider when it comes to timing, so make sure you evaluate all possibilities.
4. What is your company worth, and who can help you?
This question is like asking, “How much is a car?” The answer is – that it all depends. Beyond the basics of financial statements and the business tax returns for three to five years, beauty is in the eye of the beholder, or potential seller.
In addition, to help you determine the business’ value, you will need to assemble a team that can include an investment banker, CPAs, attorneys, and others. Valuations are primarily based on a multiple of adjusted earnings.
It would be best if you worked with people who understand the market. If you are a tech company, work with professionals who understand that landscape and buyers.
You truly need serious, professional support. Having a cadre of professionals who have transactional experience – it may not be the same team that handles the day-to-day affairs of your accounting and legal work.
In tech alone, there is a universe of 30,000 companies globally that could potentially buy a business. Knowing how to sift through the possible buyers and position the company for value to likely buyers is not child’s play.
You need a team that can project the future value of the business to show the payout to the buyer.
The bottom line is that selling a business is a full-time endeavor. Remember, you may be an expert at running your business, but you are a rookie in selling it.
If you do want to be connected to experts who can help you know if your time is right to sell, contact us here.