How to Sell a Company
How to Sell a Company
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Six Tips for Getting the Most when Selling your Business
Newspapers and magazines are full of articles that help people to mazimize the sales potential of their homes. For most people that represents a substantial portion of their personal net worth.
For business owners, their enterprise is in general their single largest asset. If that’s the case, why is there so little written on the subject of ‘how to stage a company for sale’?
So, here are some of the common tips on selling a home taken and applied to selling a business
A. Street Appeal
What does it look like from the sidewalk? First impressions are very important and the first thing a corporate
buyer will want to see is financial statements. First impressions are vital! A company's statements tell a lot about the organization. For example, if a company had a hiccup one year, it is important to have an explanation to hand.
It is also important to make sure that financial ratios are up to industry standards, since everything will be analyzed.
Finally, every business should have forecasts that can be defended and that stand-up to scrutiny.
B. Depersonalize
As any realtor named Tom, Dick or Harry will tell you, a potential home-buyer visualizes
themselves living in the home, as they stroll through the rooms. If you’ve plastered your
honeymoon pics all over the house, it’ll be a tough sell.
The same is true in a business sale. An owner who has a ‘rubber stamp’ on every facet of the
business marginalizes the operation in the buyer’s eyes.
“Owners who run their ships like it will sink without them, risk having their valuations sink faster
than an anchor” says a Principal at a leading California based Private Equity Group. Most buyers
ask the question, “Will the business walk, if the owner walks?” They are buying the business not
the owner. The more the business is delegated to decision-making management, the more it
reassures the buyers that the owner has built a system that works and is scaleable.
C. Neutral Colours
Neutral tones in a home widens the range of potential buyers. The same principle applies to companies and is called "customer diversification".
For example, if 25% of the order book is attributable to a single customer, and that customer is not in a stable market, then it is a red flag to a potential buyer. It is like painting the kitchen bright red and will make the company less attractive to the average buyer.
D. Remove Clutter
Apparently, home buyers like to sneak a look into closets and cupboards. When selling a business, any “dirty laundry” that is pushed into a closet will be discoverd during the due diligence process. It is much better to be transparent from the beginning and this will make for a smoother selling process.
For example, If there is litigation pending, it is much better to be open about it right from the start and to give a full explanation. A good buyer will understand that this type of thing is just a cost of doing
business in the same way that cleaning is a cost of running a home.
E. Add Warmth and Life
Adding fresh flowers to warm up a room, or opening a package of freshly roasted coffee in the kitchen are suggestions often made by home stagers because it’s the little things that matter.
In a business, warmth and life comes from employees. If the receptionist is irritable and the employees are standing is a huddle around the water cooler, the negative message will quickly be picked up on by a potential buyer.
You can be sure that a good buyer will find opportunities to chat to employees to gauge the levels of morale and commitment. You may have heard it said: “if you take care of your employees, they’ll take care of your business.” In this case there is a lot of truth to it!
F. Put Together a Proven Team
Doug Nix has written an excellent blog post on how to select a professional team for a corporate transaction. He says:
So how do you identify those people? The starting point is to ask three key questions.
- How many transactions have you been involved with?
- What was your role in those transactions?
- How many transactions have you closed?
A lot of people will answer: “I’m working on this deal, I’m working on that deal, I’ve been involved in this one or that one”. That tells you immediately that either they’ve not led transactions or they’ve not completed them.
This is excellent advice, and Doug goes on to describe the kind of answer you need to hear:
When people ask me this question I can tell them that in the last four years I’ve completed thirty transactions here at CFA. I can tell them that I played a major part in all of them and in almost all of them I was the lead negotiator. In several cases, changing circumstances in the market place led to the transactions having to be renegotiated.
Doug Nix may be contacted through his confidential contact form
