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Looking Out for Deal Breakers During Mergers and Acquisitions

While both sides of a merger or acquisition hope the deal will go through without any issues, that’s not likely to happen. Issues are expected during this process, but they shouldn’t be enough to cancel the deal. Buyers, however, will want to make sure they understand what could be a deal breaker and what they should watch out for during the entire process so they know if they need to walk away.

What is a Deal Breaker?

A deal breaker can be just about anything that causes the buyer or seller to cancel the merger or acquisition. Buyers are going to want to make sure the merger or acquisition is going to go as smoothly as possible and that it will be a success in the end. To try to reach this goal, they’ll want to look for anything that could be a large problem. These large problems are the deal breakers that could mean a merger or acquisition is just not a good idea any longer.

Knowing When to Walk Away

When a lot of time has been spent working on a merger or acquisition, it can be easy to think that large problems will be solved eventually. The issue is, it may cost a lot more in the long run to solve the issue or it might be impossible to actually solve. Deal breakers should be carefully considered to make sure the deal could be successful and that the merger or acquisition is not going to be the end for either of the businesses. Buyers and sellers will want to make sure they know when to walk away from any deal that could be potentially a poor decision.

Miscalculations or Higher Than Expected Costs

When price starts to be discussed, there’s a lot to go into it. Buyers can be shocked when the seller prices the business more than they expected. Sellers might be surprised when buyers value the business much higher or lower than they expected. The value often goes hand in hand with forecasting the potential financial future of the business, which can be difficult to do.

Miscalculations can come when there are inflated numbers for the business or the financial history doesn’t equal the financial past of the business. It’s better to be conservative with the calculations for the future of the business to get a more accurate idea of the current and future value of the business. Since mergers and acquisitions can take time to complete, miscalculations can become apparent during the deal. If this happens, careful consideration of what was miscalculated and the impact it has will need to be done to ensure the deal is still a good deal.

Unclear Terms for the Merger or Acquisition

The Letter of Intent (LOI) is basically what the final deal will include. This should include more than the price. It should include all of the terms of the deal, the closing date, any protection if the deal falls through, and more. This is often more important than the price because the terms are what both sides will need to agree to. With the LOI, make sure all terms are as clear as possible. Unclear terms could lead to issues down the road where one side believes something is happening and the other side believes it should be handled differently according to the terms. Unclear terms in an LOI should be rewritten before it’s accepted or the deal may not be able to go through.

Business Erosion During the Process

Mergers and Acquisitions can take up to a year to complete, which can lead to huge changes for the business being sold. Employees, clients, and vendors may be uncertain of the business’s future, so there may be changes with them during the deal. Advisors should be able to handle this during the negotiations, but it’s possible the business changes to the point it’s no longer a good deal. If this happens, it’s best to walk away.

Irreconcilable Differences Between Businesses

For mergers and acquisitions to be possible, the businesses need to be able to blend together. Looking into the cultures of both businesses is crucial as this enables buyers and sellers to ensure the deal is going to be one that is beneficial for most businesses. It’s important to find this out as early as possible, before the negotiations get too far. If the businesses have mismatched strategies, the systems applications cannot be combined, or if there will be any other major issues between the two businesses, it may not be a good deal for the buyer.

Insufficient Planning Before Merger or Acquisition

The planning that goes into a merger or acquisition is crucial. Proper planning makes the entire process possible and can help attract more buyers or help the deal go smoother. Sellers will want to watch out for deals where the buyer is not prepared for the merger or acquisition and doesn’t know what the business is worth, the true value of everything the business has, or what needs to be done to complete the merger or acquisition.

Inflexibility of Seller or Buyer

Mergers and acquisitions involve a ton of negotiations. There are points that the buyers and sellers will need to discuss before they can find a common ground to agree on. If the buyer or seller is not willing to negotiate, it could be a sign that there is a lack of seriousness in the deal. Buyers who are not willing to negotiate might mean they aren’t really interested in buying the business and sellers who won’t negotiate might not be ready to commit to the sale yet. Inflexibility on either side can mean the end of the deal.

Buyer Financing Issues

Buyers need to be able to purchase the business. Many times, they need to be able to get a loan to cover the cost of the business. However, it’s possible the buyer will have trouble getting funding to purchase the business. When this happens, it may end up being a deal breaker if the funding is not eventually obtained. Sellers will not want to delay the sale indefinitely while they wait for funding to be arranged.

Data Privacy Issues

Data privacy will be crucial for both businesses. Before the merger and acquisition can be completed, this needs to be discussed between both sides. There should be a discussion over how information is collected during the merger and acquisition process, what happens to the data after the deal is complete, and how the data will be kept secure during and after the process. If the information that needs to be kept private cannot be secured and kept private, the deal may not be viable.

Issues Meeting Regulations

Some businesses will need to meet laws and regulations. This is common in highly regulated businesses like those in healthcare, finances, or businesses that deal with children as consumers. The business should already meet all regulations, domestic and international, and should provide disclosures about the regulations for the buyer. If regulations are not already met, it could mean the business is going to have issues in the future that the buyer will need to deal with. This could mean the deal is not a good deal for the buyer and it may be better to walk away.

Extended Delays Throughout the Process

Wann Firma verkaufenThe entire process can take up to a year or longer. When the seller isn’t prepared, the buyer cannot obtain financing, or there are other issues that delay the process, the deal may not be able to be completed. Some delays are expected through the process and should be handled as they occur. However, if there are too many delays because of one side, if the delays go on for too long, or there just isn’t progress being made in the deal, there is more time for potential issues to occur. Delays can be a sign that the deal should not go through or that one side is not really ready for the sale. Extended or numerous delays can definitely be a deal breaker.

Due Diligence to Find Deal Breakers

There is a lot that goes into the sale of a business. Buyers and sellers should be aware of potential deal breakers and which ones they can impact to make it less likely the deal will fall through. During the merger and acquisitions process, the buyer needs to ensure they do their due diligence. This enables them to find deal breakers like incompatibility that simply cannot be fixed to allow the deal to go through. Doing this enables them to make sure they can find these issues before it’s the final hours of the deal to minimize the time and money spent on a deal that simply won’t work.

If you’re planning on going through the mergers and acquisitions process, understanding potential deal breakers will allow you to see when you should negotiate further or when you should walk away from the deal. Pay attention to the potential deal breakers here and do due diligence to ensure you know how to handle the process and what could happen during the merger and acquisition.

Non-Disclosure Agreements: Important Facts Every Seller Should Know

Non-Disclosure Agreements (NDAs), sometimes referred to as Confidentiality Agreements, are universally binding contracts intended to ensure the confidentiality of shared information. They are frequently used in a wide variety of business transactions, including Mergers and Acquisitions (M&As).

It can be difficult for those who don’t have dedicated legal experience to understand exactly what information needs to be included in a Confidentiality Agreement. Given that these forms are considered to be binding contracts, it’s important for buyers and sellers to know what they’re agreeing to when they sign on the dotted line, though. This article will introduce the key terms of NDAs, including the most striking differences between standard form NDAs and M&A MDAs.

The Basics

As stated above, NDAs are designed to ensure the confidentiality of information being passed from one party to another. There are two basic formats for NDAs: mutual and non-mutual agreements. The former is typically used in business transactions where both parties will likely be sharing confidential information, while the latter is often more appropriate for M&As, in particular.

Since sellers are the ones who typically release confidential information during the M&A process, NDAs are designed primarily to protect their interests. Often, though, the terms of NDAs are negotiated prior to the sale. Thankfully, sellers do typically have substantial leverage when it comes to negotiations and sending out form NDAs is an accepted part of the sale process.

Why Go Non-Mutual?

The majority of M&A sellers prefer non-mutual NDAs, especially if they do not anticipate receiving confidential information from their buyers. The use of a non-mutual NDA offers prospective buyers the assurance that the seller will not be requesting access to restricted information, as well. The majority of serious, cash buyers don’t intend on sharing confidential information, to begin with, so although the use of a non-mutual NDA is of primary benefit to the seller its use generally goes unquestioned by buyers, as well.

Essential Elements

NDAs don’t have to be absurdly lengthy and complex documents. In fact, well-structured NDAs are typically only a few pages long. There are a few essential elements that should be included in every NDA, especially those issued in the process of M&As.

Every NDA should begin by identifying the seller and the buyer. It should also offer a precise definition of what is considered confidential information in the context of the M&A and what the scope of the confidentiality agreement will be for the recipient. Often NDAs include terms obliging the buyer to either return or destroy certain information that has been deemed confidential when it is requested by the seller.

The NDAs used in M&As typically contain a set term, as well. When that term expires, the agreement will be voided. If there are any exclusions from confidential treatment that will be in place throughout Defining Confidentiality.

Woman making a phone call and smilingSellers should make a point of carefully defining what information is considered confidential, as disreputable buyers may intentionally seek out loopholes that allow them to start using the company’s valuable secrets before the term of the NDA has expired. Decide in advance whether oral information can be deemed confidential or if, by definition, confidential information must be actively defined as such in writing. Since orally conveyed information can be a tricky subject, many M&A NDAs contain stipulations that the confidentiality of any information conveyed orally to the buyer must be confirmed in writing within a certain period of time.

Non-Use Agreements

The purpose of sharing confidential information with potential buyers prior to executing an M&A is to facilitate negotiations. Most NDAs go one step further than just requiring recipients to keep confidential information to themselves, though. They also contain clauses specifying the intended use of confidential information, which is exclusively to be used for evaluating and negotiating the specific M&A transaction in question.

Explicit Exclusions

Sellers may not be happy about it, but the fact is that almost every NDA, no matter how beneficial to the seller, contains at least a few exclusions. These are intended to release the recipient from the terms of confidentiality and non-use in certain circumstances that may place an unreasonable burden on the buyer.

Letter Of IntentExclusion clauses typically cover, at a minimum, information that was already available to the recipient prior to signing the NDA and not explicitly subject to the obligation, information that was publicly available prior to signing, and information disclosed to the buyer by a third party with no obligation of confidentiality.  Some NDAs also allow for the use or disclosure of information that has been independently obtained by the buyer without the use of any information covered by the NDA.

Sellers should also bear in mind that there may be circumstances under which buyers will be forced by court orders to disclose confidential information. Even an NDA offering the maximum possible amount of seller protection cannot require buyers to break the law by withholding information. However, it can require the recipient to offer adequate advance warning prior to releasing information under a court order.

Return or Destroy Provisions

Every NDA, whether drafted in the context of an M&A or used for other business transactions, will include a provision that requires confidential information to be either returned or destroyed upon request. In the context of M&As, this provision is designed to protect sellers in the event that the acquisition does not move forward.

Sellers should word their return or destroy provisions carefully. They should ensure that the NDAs recipient is required to delete electronic files in addition to paper copies and to turn over any analyses that have been performed in-house using confidential documents.

Additional Provisions

The NDAs used for M&As may also include a number of additional provisions, although they are not required. It is not uncommon for sellers to include injunction clauses governing how breaches of the NDA will be handled, for example. Many sellers also require provisions that explicitly remove the contractual obligation to go through with the M&A except as provided in any future agreement and just about all of them include disclaimers regarding the accuracy and completeness of the information being provided, as well.

Find the Best Business Broker to Sell Your Company

It’s time to sell your business. You may be looking to retire, ready to launch a new business, or ready to move to an exciting new city and see what’s waiting for you. No matter why you’re ready to sell, the top thing on your mind is likely getting the best price for your business. You’ll want to have enough money to make that next move. As you get ready to sell your business, consider hiring a business broker to sell your company. While you will need to spend some money to pay the business broker for their services, this can help you get a lot more for your business in the long run.

If you’re planning on selling your business soon, start today to find the right business broker. You don’t want to end up working with one who can’t get you the money you need for the company or that takes forever to find an interested buyer. You don’t want to wait years for the business to sell. Finding the right business broker means you’ll have help fast, you’ll get personalized assistance to sell your business, and you’ll be able to find the right buyer as quickly as possible. It may also mean you’ll get more from the sale of your company.

Benefits of Working with a Business Broker

The main downside to selling a business on your own is that you don’t have experience. You may have an idea of the type of buyer you want to sell your company to, but you won’t know how to find the right buyer, how to make sure the sale is successful, or how to get as much as possible for the company. This is where a business broker comes in. They offer a ton of benefits that can help you get more when you sell your company. Some of the benefits include the following.

  • ClockFree Up Your Time – Selling a company on your own requires you to spend countless hours marketing your business, looking into potential buyers, and dealing with the actual sale once you find the right buyer. A business broker handles all of this for you. This gives you more time to maintain your business and continue doing everything you’ve been doing up to the decision to sell.
  • Determine the Sale Price – How much is your business really worth? It can be incredibly difficult to determine the true value of your company and figure out how much you should get from selling it. Business brokers have experience and access to information that helps them determine the value of your business. They’ll make sure they can get as much money as possible with the sale.
  • Provide Marketing for the Sale – Marketing the company is a crucial step to help bring in many potential buyers. A business broker knows how to make the company look good to potential buyers to sell the company fast and get more money for it.
  • Make Sure the Company Sells – Once a buyer is found, there is still a lot to do to make sure the sale goes through. The business broker works on making sure the company is sold as fast as possible to minimize potential issues. They’ll work with you to create a deal with the buyer then finalize the sale of your company.

How to Find the Best Business Broker

Like any industry, some business brokers are far better than others at what they do. Some have more experience overall or more experience in your industry and some are going to work hard for you while some may just try to sell the business fast, without much concern over getting you the best price. When you’re looking for a business broker to sell your company, there are a few things you’ll want to look out for. Keep an eye out for a broker who has the following before you decide to hire anyone.

  • Experience Selling Businesses – Check the experience a potential business broker has. Business brokers should be able to provide you with a list of previous clients as well as examples of the work they’ve done in the past. Look into the references they provide to see what kind of work they’ve done previously. This gives you a good idea of what to expect them to do for you.
  • thumbs upGood Reputation – Reviews are available for everything, even business brokers. Look online to see if there are any reviews for the business broker you’re considering and read through them carefully. A business broker who has a good reputation is likely going to be a better option as you can trust they’ll work hard to sell your business.
  • Specialization in Your Industry – General business brokers are available, but they might not know about certain details in your industry that can impact your sale. Look for a broker who has experience selling businesses in your industry as well as in your area. This can help you get more when you sell your business because they already know how to sell a company like yours.
  • Uses a High-Quality Marketing Plan – How they market your business makes a big difference in the potential buyers they’ll find. Learn more about how they plan to market your business and ensure they’re going to create a high-quality marketing plan specifically for your business to attract the right buyers.
  • Ready to Tell the Truth – Make sure the broker you choose is going to tell you the truth, not what you want to hear. It may be hard to hear that you won’t get as much money as you want for the company, but you need to be able to trust that your broker is being honest about the value of your company and issues you might face during the sale.

Red Flags to Watch Out for When Choosing a Business Broker

It’s just as important to know the red flags to watch out for as it is to know what to look for in a business broker. If you see any red flags when you’re meeting with the broker for the first time, skip that broker and work on finding a much better one to help you.

If the business broker requires the majority of their fee or all of it upfront, go ahead and walk away. While you may have to pay some of their fee at the beginning, you should never pay the full price until your company is sold. This is a major red flag that the business broker is not going to actually help you sell the business but, instead, is going to take your money and disappear.

Brokers need to take advantage of many different marketing techniques to reach out to buyers for you. If they don’t have a website, it’s a sign they might not be up to date and may not be able to reach out to nearly as many buyers. This could lead to a much lower sale price for your company if they’re able to sell it.

Hand shakeTalk to the business broker about the price for your company. If they seem overly confident, they might be trying to get too high of a price for the company and may have trouble actually finding potential buyers. Also, ask about how they are going to do the valuation for your business and what it includes. You want them to be able to explain to you and to potential buyers why your business is worth as much as they think it’s worth. If they can’t explain how they came up with the number, it’s possible they’re trying to reach for too high of a selling price.

What to Expect After You Hire a Business Broker

After you’ve found a business broker you want to work with, expect them to get started working on trying to sell your business right away. They’ll need to determine the market value for your company so they know how much it should sell for. Then, they should start working on finding the right buyer. They’ll need to use a high-quality marketing plan to let potential buyers know about your company and to get them interested in buying your company. They should be able to find a buyer fast, though the amount of time this takes does vary. Once a buyer is found, the business broker should work closely with you and other professionals to facilitate the sale and have everything finalized as fast as possible.

The decision to sell your company is a huge one. You want to get as much as possible from your company so you can move forward with your retirement, starting a new business, or anything else you want to do in the future. Use the tips here to make sure you’re working with the right broker. The right business broker is going to work hard for you and strive to make sure your company sells quickly. They’re going to make sure your company sells for as much money as possible so you’re happy with the outcome of the sale.

How to Prep Vital Documents Before a Company Sale

Potential buyers for your business want to see the numbers. They want to see how profitable your business can be for them, what they should expect if they buy your business, and what your business includes. Otherwise, they won’t be interested in it. To show potential buyers what you have to offer, you’ll need to prepare a number of different documents you can share with them.

What Documents are Vital for a Company Sale?

You’ll need a variety of different documents to prepare for the company sale. These include documents describing the business, legal documents, financial statements, inventory lists and more. Make sure you have these documents as well as any other documents that might be useful for the buyer on hand before you start looking for a buyer.

  • Information About the Business – You’ll need basic information about your business to get buyers interested and wanting to learn more about what your company offers. This should include photos of your business, opportunities for improvement with profit projections, descriptions of your products or services and prices, your business plan, your marketing plan with samples, and your business procedures manual.
  • Legal Documents – Some legal documents will be needed before entering any agreement with a buyer, while some are going to be current legal documents for your business. Documents needed to prepare to sell the business include a non-disclosure agreement, a financial statement the buyer completes, an offer-to-purchase agreement, and information about seller financing. Other legal documents to have on hand include patent, trademark or other intellectual property documents and business formation documents.
  • Financial Statements – Potential buyers want to see your business is making money and that they can make money from the business as well, so financial documents are especially important. These include statements for recent earnings as well as tax documents. You’ll want to have on hand financial statements including the present year as well as the past 3 years, statements showing cash flow, description of financial trends, aging reports for accounts payable and receivables, and your tax documents for the past 2 to 3 years.
  • Inventory and Assets – What does the buyer get if they purchase your business? You’ll want to provide an inventory list detailing the value of all inventory, and a list of what they’ll get with the business, like the fixtures and equipment, with the value listed. All of your assets should be listed to ensure the buyer knows exactly what they’ll get if they purchase your business.
  • Contracts – Your buyer will need to know about any contracts, loan agreements, or liens they will need to handle if they purchase your business. This includes contracts for suppliers and distributors, a list of current clients and contracts for major clients, any outstanding loan agreements or liens, the building lease if applicable, any equipment leases, and any maintenance agreements.
  • Employee Information – Your employees will likely stay with the business through the change of ownership, so the buyer will need to know about them. With your documents, include a list of employees with hiring dates and salaries, any employment agreements, and the employment policy manual.
  • Certifications – You may have certifications, licenses, and other documents your potential buyer will need to be aware of. They’ll want to find out about business licenses and certifications, any professional certificates you might need, and any insurance policies they’ll need to keep for the business.
  • Other Unique Documents – It’s possible you’ll have other types of documents not listed here that are vital for your business. Keep these with your documents to have them ready to show potential buyers.

Assemble Documents Early to Prep for Sale

Go ahead and start assembling all the documents today to ensure everything is ready when you start to look for a buyer. You’ll want to have everything ready long before a potential buyer becomes interested in your business. They’ll want to see these documents right away to determine if they’re interested. If you don’t have everything organized and ready, the buyer might decide they don’t want to purchase your business.

How to Organize Physical Documents Before the Sale

Depending on your business, there may be quite a few documents you have hard copies of on hand. Physical documents should all be organized in a box, separated into files by the type of document. All files should be labeled so you can easily see what’s in the file and so your buyer can look through everything. You should keep informative documents about your business at the front so they can look through these first and have all other documents organized behind these so they can see what your business offers.

How to Organize Sensitive Digital Documents

Many businesses today keep their vital information stored digitally instead of having a hard copy on hand. It’s important to make sure all of the data is stored carefully so it cannot be accessed by anyone without authorization. This is crucial for documents that include sensitive information, such as legal documents or information about trademarks and patents.

For these types of documents, use a virtual data room like Docurex. A virtual data room allows you to store and organize documents with sensitive information, yet easily provide access to potential buyers who will need the information to determine if they want to purchase your business. The data room should be highly secure to ensure your documents are protected and able to be shared with only potential buyers you want to have access to them.

If you’ve made the decision to sell your business, start working on the accumulation of essential documents today so you’re well prepared when you do have a buyer who is interested. This ensures you’ll have everything you need on hand and easily accessible for them. Whether you choose to store hard copies or you’d prefer the security of a virtual data room, organizing documents today gives you the peace of mind you’ll be ready when a buyer does choose to learn more about your business and what it can offer them.

Business Building

10 Effective Ways to Raise Business Value Before Selling

Your business is your baby. Before it even got off the ground, you had a clear vision of the end result. Over the years, you nurtured it and watched it grow and thrive. All along, you knew the time would come to let it go, but like most entrepreneurs, you’re bound to encounter a common roadblock at this point. To you, this company you built from the ground up and drove to success is priceless. Unfortunately, prospective buyers approach the matter from an entirely different perspective.

Determining the True Value of Your Business

When the time comes to sell your company, calculating its worth takes a more neutral tactic. This is where business valuation comes in. Several different strategies are used to determine a business’ value, and a wide range of factors are figured into the equation, such as:

  • Price versus earnings
  • Future revenue potential
  • Past gains
  • Assets after liabilities are subtracted
  • Multiplying share prices by shares outstanding

These are only a few of the common aspects considered when figuring a company’s true. Various calculations can be used, and industry, size of a business and other elements work their way into the mix as well. Once the numbers have been crunched, many entrepreneurs find their business’ market value is quite a bit less than they’d imagined. If that’s the case, certain steps can be taken to boost your company’s financial appeal before actually placing it on the market.

Effective Ways of Boosting Business Value

Though you’ve most likely invested a great deal of time, energy and capital into your company, there’s always room for improvement. This is especially true in the eyes of prospective buyers. Plenty of measures can be implemented to raise your business’ value before placing a “For Sale” sign out front. Some of them are more costly than others, but all of them are sure to generate a noticeable ROI.

1) Set Yourself Apart

In the business world, being unique carries a great deal of weight in its own right. Consumers tend to appreciate distinction when looking for a company to do business with in terms of products, services, customer support and a range of other aspects. Public interest gives potential buyers greater incentive. With that being the case, they’re going to look for businesses capable of holding their own in their niche.

Today’s business landscape is so fraught with competition, even the smallest detail could be the one that propels your company to the top. Any aspect setting you apart from others in your field is crucial to success, but it’s equally vital to drawing buyers’ attention.

Research your top competitors to better understand their weaknesses as well as your own. Improve upon your shortcomings and play on your strong suits to further boost your status in your industry. Purchasing prospects are sure to take notice and respond with more lucrative offers.

2) Promote Your Strengths

Plenty of people are uncomfortable with self-promotion, but in the business world, it’s a must. Refining your products and services goes a long way toward building business value; still, some assets can’t be seen on the surface. In some cases, those underlying elements are the ones in which buyers may be most interested.

Have you patented a product competitors are trying desperately to imitate? Are you dominating a seemingly tiny sector of the market others can’t seem to reach? Does your research and development team have a revolutionary idea in the works that could prove incredibly profitable to future owners?

Be sure to let potential buyers know about those unseen aspects. Keep in mind, though, it’s only empty bragging if you can’t back it up. Have clear documentation to support your claims and concepts.

3) Streamline Your Operations

Efficient businesses are productive ones, and productivity tends to boost profits. Do a deep dive on the internal operations of your company, and evaluate it from every possible angle. Bringing in an efficiency expert could work wonders in this regard.

Man reading a financal plan

Whether you do this on your own or turn to a professional for help, the ultimate goal here is to find areas where your business is faltering. Then, develop and implement new practices to make things flow more smoothly.

Doing so should ramp up productivity and revenue while lowering the cost of operation without sacrificing quality. All these elements add up to higher earning potential and lower overhead, both of which are highly attractive to potential buyers.

4) Hand over the Reigns

If you’re like many entrepreneurs, you’re an integral component of your business. While there’s nothing wrong with inserting yourself into every aspect of the company, it could bring up a red flag in the eyes of prospects. They’re most likely going to be leery of buying a business if it stands to crumble once its current owner is out of the picture.

No one is saying you have to walk away before placing your company on the market, but it’s important to start weaning the business off your guidance and vice versa. Create a detailed hard copy of daily operations for future owners’ reference. At the same time, be sure everyone in the company’s hierarchy is well-versed in specific procedures and protocols. Pass your knowledge and experience on to someone qualified to oversee the business in your absence.

You can still play a fundamental role in the company right up until it’s signed over to a new owner, but make sure it can run smoothly without your help as well. Seeing the business is capable of retaining its strength when you’re gone is sure to be a significant confidence boost for prospective buyers; as such, they’ll probably be motivated to make a higher offer.

5) Bring in New Customers

Long-running customers are critical to all businesses regardless of size or industry, but having a steady stream of new ones is also vital. Creating a nice balance between the two ensures continual cash flow and keeps the company from growing stale. Targeting new prospects is the key to generating fresh clientele, so ramping up your marketing efforts is bound to boost potential buyers’ interest as well as your company’s market value.

6) Don’t Ignore Existing Clients

Whether they’ve been with a company for a month, a decade or several generations, repeat customers form a strong foundation for any business. After all, being able to retain clients shows newcomers you’re worthy of their attention. It also proves to prospective buyers you’ve developed ongoing sources of revenue they can count on.Man typing on a laptop with a business suit case

While you may not necessarily need to market to long-time faithfuls, they shouldn’t be ignored. Your continued marketing efforts will carry over to the next owner, offering benefits from a couple different angles. For one, those customers will have a certain level of reassurance they won’t be taken for granted once new ownership takes over. Secondly, prospective buyers will feel more confident in those clients remaining loyal to the brand rather than its founder.

7) Pay Special Attention to Prospective Clients

As you’re well aware, customers fall into a wide range of areas along your sales funnel. Those further along in the process play a key role in not only your bottom line, but that of potential buyers. They’re already primed for conversion, and they’re far closer to becoming paying customers than those just beginning to take an interested in your products or services.

Place extra effort in closing all those pending deals before setting an asking price for your business. Also emphasize follow-ups with any newly integrated customers for retention purposes. Having a diverse and dynamic clientele gives possible buyers plenty of variety to work with.

8) Keep Moving Forward

Continuing to invest in a business you’re planning to sell might seem counterproductive, but nothing could be further from the truth. Letting your company stall out will cost you in a number of ways, not the least of which is incoming revenue before ownership changes hands.

Don’t stop forging ahead just because you’re putting the company on the market. Keep updating equipment, improving manufacturing processes, developing new products and services and carrying out other upgrades just as you would under normal circumstances. Continue funneling funds into new marketing campaigns and SEO strategies as well.

Ignoring all these aspects will only lead your business to fall behind the competition. It’ll grow stale in the eyes of customers and prospects, causing your clientele and cash flow to run dry. In turn, it’ll lose a great deal of luster for potential buyers. Aside from seeing dwindling profits, they’ll be repelled by the thought of having to make numerous upgrades on their own after purchasing your business. Though these issues may not be deal breakers, they’ll definitely lead to much lower offers.

9) Hold onto Your Workforce

TeamFully trained and qualified employees hold a great deal of power. Regardless of rank, they’re the backbone of any company. Having to train an entirely new team generally spells losses for pending business owners where both time and profits are concerned, so don’t send your personnel packing if you’re planning to sell your business.

Giving prospective buyers a well-trained and highly skilled crew to work with once they take over provides a great deal of stability and assurance. Granted, some new owners wipe the slate clean and start from scratch when they acquire a business, but this should be their choice. Don’t make the decision on their behalf because it could add up to greater losses for you as well as them.

10) Give It a Facelift

This could easily be one of the least costly but most profitable options for heightening the value of your business. It’s an age-old tactic of the real estate world and has helped countless property owners ramp up their going rates.

interior of an business comapnyPlenty can be said for the power of fresh flooring and a new coat of paint. Spruce up warehouses and manufacturing spaces if applicable. Have your reception area renovated or new fixtures installed. Little changes can go a long way toward making a business more attractive to buyers.

On the outside, make sure parking areas and driveways are in good repair. Have new landscaping features incorporated across the property and give your company’s exterior a modern makeover. First impressions are crucial, so improving curb appeal is sure to help your bottom line.

Businesses operating solely on an online basis aren’t out of luck here, either. Virtual storefronts are just as important as physical ones. Having your website redesigned and thoroughly tested to ensure all its links are working as they should may very well help draw in higher bids from potential buyers. Since online presences are immensely and increasingly important to today’s businesses, this could be a positive pre-listing move for any company.

Bottom Line

When you invest your heart, soul and savings into taking a vision from the concept stage to a fully operational enterprise, the fruits of your labor are bound to be priceless in your eyes. Once the time comes to move on to the next phase, though, countless entrepreneurs are stunned to discover their businesses are worth quite a bit less than they expected.

Several different factors go into determining the value of a business when it goes to market. Even the most successful and profitable companies often fall short when the valuation results come in. If you find yourself in a situation like this, you don’t have to settle for less. Certain steps can be taken to boost your business’ worth.

Set yourself apart from others in your niche both on the surface and through underlying aspects. Increase efficiency in every way possible to improve productivity and profitability. Give your business the capacity to operate without your intervention. Foster relationships with customers and prospects in every level of your sales funnel. Don’t stop forging ahead with new ventures. Renovate the company itself rather than its workforce.

Some of these measures require a certain amount of effort on your part whereas others depend on leaving well enough alone. All focus on promoting strengths, transforming weaknesses into assets, lowering operational costs and spurring earning potential. In doing so, you’re guaranteed to heighten your company’s value in the eyes of prospective buyers.

 

Preparing your company for a sale: Tips, strategies & tools to keep in mind

When deciding to sell your company, you can either choose to sell it in its current condition or prepare for a Merger and Acquisition (M&A).

A strategic M&A plan can considerably increase the sale value of your venture and should ideally be your chosen plan of action. You will make your company more attractive to potential buyers if you address your businesses weaknesses well in advance of any due diligence or negotiation processes. Here are a few simple steps that can help you maximize the value of your business.

Create a pre-M&A improvement plan

Before devising an M&A improvement plan, you must first take stock of the different aspects of your company such as:

  • Identifying areas that are doing well, those that are performing below average and need your intervention, and those that need a complete overhaul.
  • Creating a timeline and dedicated project to address any identified concerns and complete upgradations.
  • Assigning resources that you are willing to allocate for handling the M&A process and internal performance improvement initiatives.

Remember, recognizing the needs of your company early on will help put you in a better position during negotiations. Investors are usually looking for small companies with the potential for larger projected growth in the future. Many owners often make the mistake of discontinuing investments to improve a company once they decide to exit. Instead, this is the time where you must attempt to increase the value of your company by investing in equipment and upgrading processes to lead to higher performance. Your company’s value is directly linked to how it performs in the period leading up to, and during the M&A.

Keep your plans to yourself

Avoid disclosing your plans to enter an M&A until after the deal is sealed. While consulting with your legal advisors and accounts department, emphasize the need for discretion even if their profiles are contractually bound in non disclosures.

The news of your plans to sell the company might induce panic in your staff, generating uncertainty, which in turn might devalue the business right when it needs to be performing at its peak. Instead, train your employees to be able to carry on tasks in the absence of your supervision. Develop repeatable processes and create quantifiable parameters to ensure that your business continues to grow even after your departure.

Pay close attention to managerial staff and resolve any internal conflicts. Take every measure possible to avoid high turnover before M&A. Remember a high rate of employee retention is the sign of a healthy business!

Increase your EBITDA

Your company’s earnings before interest, taxes, depreciation and amortization will be the most likely metric used to evaluate its worth. The higher your EBITDA, the larger settlement you’re likely to receive. Thus, instead of focusing on gross revenue, attempt to push your EBITDA. Analyze your expenses to highlight funds that can be reallocated to increase your working capital, BPS, and boost EBITDA. If needed, hire extra marketing personnel and increase your top-line growth to maximize earning potential.

An investor is likely to evaluate your company’s track record of sales to estimate its projected earnings. It then makes strategic sense to expand your marketing team while preparing for an M&A. You can also choose to set up a revenue juggernaut in this phase to help realize hidden potential.

Prepare for a financial audit

A financial audit is a likely requirement before an M&A. Hire a reputable firm to conduct your own audit before entering negotiations in order to help improve the financial health of your business

A professional audit will also enable you to better understand what potential buyers might be looking for, give you a sense of what a GAAP audit constitutes, and having this data at your disposal will grant you an advantage during negotiations.

During the M&A process make it a point to highlight a history of compensation. Many entrepreneurs tend to combine their personal financial portfolios with their company’s. It is always advisable to clearly demarcate a separation early on and pay yourself a salary which adequately covers your expense and leaves behind a safety net to sustain your lifestyle.

Prepare a 3-year financial projection

A plan which includes clear financial projections is critical to garnering credibility for your company during M&A presentations. While surpassing quantifiable goals and milestones can add value to your company’s acquisition offer, failing to meet set financial targets can seriously jeopardize a sale. Hence, be certain that the projected numbers are achievable in the proposed period.

There are a couple of measures that you can put into place before framing your proposal. These must include knowing the Strengths, Weaknesses, Opportunities and Threats (SWOT) of your business. A SWOT analysis is critical before attempting to prepare a financial projection. Setting achievable goals and highlighting your competitive sustainability attests to the business acumen of your enterprise, while a well-planned execution of the presentation puts the ball in your court during negotiations.

Identify potential buyers

Networking in the right circles is key to finding investors that best suit your agenda. Keeping up-to-date with industry trends, and potential investors’ investment portfolios can help you pitch your company for sale. Identify a list of potential buyers, establish contact, and foster their interest in your enterprise.

Treat buyers like clients, highlighting how your company can best serve their interests. Share your projected milestones with prospective buyers and highlight a potential business that might profit from partnering with your company. Paint them a larger picture of where you see your company in the years to come, focusing on how they would benefit from processes that you have already put into place and in motion for a seamless transition/integration.

Prepare for final negotiations

If you’ve successfully made it to this stage, you will now be the best judge of the value of your company. Armed with a SWOT analysis, a successful 3-year projection, and favorable EBITDA, here’s the last negotiation tactic to note so you have the upper hand, ensuring you have addressed any misdemeanors from your company’s past.

Investors will jump at the opportunity to poke holes in your company’s reputation in order to offer a lower buyout. By acknowledging any mistakes from the past, you can gain control of M&A negotiations. Remember to state things as they are, and not provide explanations or empty apologies. Set-up the circumstance that might have led to a disruption and focus on the measures you put into place to contain an unfavorable situation and prevent future occurrences. Assign a short duration to address these concerns right before commencing M&A proceedings, effectively warding off any possibilities of them being brought up later to throw you off track.

Assess the best exit option

Ultimately, while selling a business for considerable profit is the dream of many contemporary entrepreneurs, when the opportunity finally presents itself it can prove to be a surprisingly emotional decision. Before making the final leap and handing over a company that you have worked several years to build, it is important for you to consider other options that might be at your disposal. Signing over all rights to your company is only one among a plethora of alternatives to capitalize on your hard work. For example you could:

  • Opt for a part liquidation, where you can either maintain control of operations or become a silent investor. This will enable you to retain a stake in the business which you can decide to sell during a larger buyout in the future.
  • Open your company’s portfolio and raise capital through equity, helping your company become larger before exiting at a higher value in the future.
  • Hire a CEO and play an advisor role. If you are feeling overwhelmed by the growing size of your enterprise and feel like you are not being able to contribute to its growth and take it to the next level, you can hire a CEO with relevant industry experience and take on an advisory role for yourself, focusing on the parts of the business process that catch your fancy.

With many points to consider, preparing your company for a sale is by no means an easy task and can be very emotional! However, following these aforementioned steps will at least allow you to realize the full value of your business and give you the due credit for all the years of hard work you’ve put in.

 

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Why Business Owners Sell Their Business

As an entrepreneur, the penultimate day of your life is the day you hand over your baby to someone else. Baby being your own business that you’ve built from the ground up. Making the decision to sell a business you’ve invested so many years of blood, sweat & tears into is incredibly difficult.
Depending on the circumstances, it can be either a deeply positive or a deeply negative experience – but it’s almost ALWAYS an emotional, and bittersweet event. There’s a ton of different reasons why business owners decide to take the leap – let’s talk about a few of them.

Personal Reasons

First and foremost, most business owners do part ways with their own venture purely due to personal reasons. Why? Cause as it’s usually said, running your own show is a 24/7 job and this can get exhausting pretty fast. Other times, it can be a purely be a shift in interest, or that they are hitting retirement. There are many reasons but here are the key ones:

1. Burned out or health problems

Nothing is more demanding than running your own business and this can sometimes either lead to owners burning out or experiencing health issues. In either case, running a business demands a lot of time and effort from its owner and the workload only keeps growing as the business grows in size. When the pressure becomes too much to bear, the owner usually decides to sell the company.

Building on this, owners can also sometimes fall ill, either by way of burnout or just bad luck. In such a case, some businesses are heavily reliant on the owner for its day-to-day operations and if the owner is suffering from health issues and physically not able to run the business. It may be the best option to sell the business in order to keep the business alive.

2. A shift in interests or priorities

We’re all human and we get bored easily, even when it comes to running a business. Especially with owners who may be serial entrepreneurs, once they’ve built a business and successfully got it to steady state, they may get bored and would like to pursue the next business idea in their head. We only have 24 hours a day and this means owners might sometimes fully cash out by selling their business to fund a new one or take a step back from direct ownership, still retaining equity but no longer involved in the day to day operations of the company.

Similarly, we all get old and the time comes when we need to hand over the keys to the kingdom. One of the most common reasons business owners sell their businesses is retirement. Although running a business has its own rewards, doing so for a long time can be exhausting! In such cases it’s normal for owners to feel that the benefits of selling the business far outweigh those of maintaining ownership.

Financial Reasons

methods of company valuationIf personally everything is going great. Sometimes, the reason for selling a business is purely financial, either to cash out and go live in the bahamas for a few years, or to capitalize on a inflated market value, or purely hedge your bets against an economic downturn. Whatever it is, here are the most common financial reasons we’ve seen for owners selling their business:

 

1. Liquidity

Although many business owners have a high net worth for their years of toil and growing their business. A considerable amount of this value is often tied up in the business as equity, and therefore, illiquid. Business owners may decide it’s time to reap some of the rewards and sell all or some their equity to convert it to cash.

In the cases where they only sell some of their equity, this is known as recapitalization. It’s a process where the exiting owner retains a minority equity stake — normally in the range of 10 to 40 percent. Usually, this is done by owners to reduce risk exposure by selling their equity to free up some cash but still retain the benefits of ownership. Generally in this case, you’ll see the exiting owner’s role slowly diminish, allowing them to almost act as advisors to the business but gain more freedom with their time to pursue other interests.

2. Macro Environment factors

Sometimes the industry of an owner’s business is suddenly gaining a lot of interest from outside investors (e.g. Artificial Intelligence right now), this vast pool of capital pushes up acquisition prices. Some owners decide to take advantage of the upswing in value and sell their businesses off at a higher than normal price.

economy businessesSometimes, the revenues of a business can decline for macro factors reasons far beyond the owner’s control — like an economic downturn or a high unemployment rate. Some business owners may choose to wait out such changes, but others can’t or don’t want to. In such scenarios, if the owner doesn’t want to wait till things get better, selling the business becomes the most viable option.

If business owners feel that their industry may go through some changes in the future that can affect their businesses negatively, some owners may be risk-averse and decide to sell sooner rather than wait an economic downturn that devalues their organization or impacts future profitability of the business.

Strategic Reasons

Sometimes, the reason for selling a company can be strategic or operational. An owner may decide to sell the company for the following strategic reasons:

Finance an expansion

If a company lacks the cash to buy new equipment, hire new employees, and increase advertising to broader its operational footprint, the owner may decide to sell some stake to an entity that can bring in the cash required for the expansion.

Raise capital for an acquisition

A company can benefit from being acquired by an entity that has the capital or debt capacity to consolidate the industry by acquiring a series of smaller competitors. In this scenario, the company improves its profitability by operating in an industry with fewer competitors. Moreover, it gets access to its former competitors’ resources like management talent, patents, etc.

Improve your competitive position in the market

Improve market share

A company being acquired by another one help it improve its market share by allowing it to leverage the larger acquiring company’s distribution and marketing channels, as well as the brand equity and goodwill.

Diversify customer base

Most small companies depend on a single or a relatively small number of customers to generate a large percentage of their revenue. This kind of customer concentration increases enterprise risk as losing even one or several key customers may cause the business to go bankrupt. In such cases a company can significantly lower the volatility of its cash flow by gaining access to the acquirers diversified customer base.

Diversify product and service offerings

A company may also look to be acquired so it can leverage the addition of the other company’s product and service offerings to its portfolio. The company can use the improved product and service portfolio to increase its customer base and revenue.

Import better management

man with business suitA company may seek acquisition by another company that has superior management practices. This strategic move can help to unlock value in the for the acquired business. The acquired business can benefit from the better, more professionally managed IT systems, equipment maintenance, accounting controls, executive leadership, etc.

Leadership succession

Sometimes business owners have to sell their businesses due to poor succession planning. If a business owner doesn’t have a worthy successor, selling the business allows it to continue operating effectively instead of closing its doors or risk declining business performance.

Conclusion

Ultimately, every decision to sell a business is based on various circumstances. Regardless of the reason to sell, it’s important for a business to be professionally appraised by an independent valuation firm so that it’s sold at a fair price, under fair terms, and in the owner’s best interest.