The more we get to know our partner before we get commit, the better our relationships are… right? But what do you really know about the way your business fits with the company buying you or the one you’re selling to? Let’s talk about how to prepare your business for the ultimate transition and what to do to make sure you see the full dollar amount you agreed to (or ensure you get a fully-functioning, low-risk company).
Take Care of the Numbers
Your first step is to take a look at your business strategy and market positioning to see if you are an attractive target or not, even at that level. Will your strategy survive a transition? Is it strong enough to make sure your company continues to produce at the level it is now so you don’t have to worry about your earnout (or other conditions of closing) and the buyer sees no disruptions in their newly purchased acquisition? Is your company positioned well enough in the market and with the right barriers to entry to stand out for a potential buyer?
If you’re unsure of the answer to these questions, you need to start digging. And, worse, if your answers are often no, you need to look into why. Honestly, doing some reverse due diligence can save your bacon so you’re not putting your company out there with these potentially damaging holes. Since most sales involve some kind of conditions such as tail ends, earnouts or other pay based on future performance, this part really kind of matters to you. It’s the difference between achieving full payday and settling for whatever you got at close.
The buyer naturally will already be performing a due diligence to make sure those numbers all add up and the potential is as great as it seems. When there’s a discrepancy, either you’re going to see it reflected in less-desirable terms or a drop in purchase price.
Most changes take time to implement, so if you’ve said to yourself “I’d like to sell this year,” you really need to re-evaluate how realistic this is. You certainly can try, but I don’t recommend it. Not only are you likely to get really crappy terms and sale price, but you’re also likely going to stress yourself out. The best thing to do is start by going over your past financials and doing an annual cleanup in your revenue. Check for areas you’re doing better in from the years previous or areas where you can see quality or revenue dropping. Your attention to these details will allow you to de-risk your business and improve your chances of getting what you want when you sell. Do a little work, make a little money and feel better about how your business will continue.
The Human Factor
Yes, we all say it: I’m only human. Well so is your team. Alongside evaluating and adjusting your strategy and market position comes reviewing your people and their processes. Are the right people in the right positions and are they performing well? Are they loyal? And do they know what’s next for them when you’ve finished the sale?
People start making mistakes when they feel uncertain; they also start jumping ship when recruiters are whispering sweet nothings about how much greener the grass is where they are. The more loyal your staff is, the more painful a ‘surprise’ sale is for them. And it will be a surprise. We naturally have to keep a lot of information from our staff when it’s time to exit — it’s not that we want to keep them in the dark, but it’s necessary for us to keep confidentiality when our livelihood is at stake.
The human factor is responsible for just about everything in your business. They know your clientele and customers, they know that the printer needs a loving slap once in a while to clear a jam and they’ve also figured out how to work together. Now you’re going to shove this well-oiled machine right into another well-oiled machine and all hell is going to break loose.
People don’t like change. They like it less when they’re not sure how that change will impact them. And unfortunately, even if you want to keep each and every one of your employees forever, you’re going to lose some people (and the buyer will, too). So to improve what will happen when you transition and integrate these teams, you need to take a look at fit and include this in your negotiations. Cultural fit matters, so expect some heavy feedback when merging teams.
If you’ve settled on a buyer, introduce them to your team. Try to get people comfortable with the switch and take their feedback. The key here is to make sure your business keeps operating at peak efficiency, even through this transition, and the people you lose are replaceable. Keep your eye on those key people, particularly if you’re going to need to stay on and be involved in operations (or if it’s going to impact your eventual payout).
The better attention you’re paying to your people, the more smoothly those processes will work as well. The important thing to remember is to ask questions of your business early and often. We do this a lot at GEXP Collaborative — it’s absolutely vital we help owners think of the questions they need to ask and the solutions available to them. You’re not expected to be experts, here. That’s not your job! But knowing how to evaluate your processes to ensure they’re operating at peak efficiencies is important, as is getting outside help to further breakdown what’s going on inside your company.
Keeping your company moving forward as you enter into a sale process. If you lost your momentum now, you may never recover it. This goes for the buyer, as well. If the company loses steam due to lack of attention or action, it’s going to affect not just the bottom line today, but also the bottom line next quarter. You can never really make up the lost time.
On both sides of the fence, then, it’s necessary to keep the business operating as best as it can. Once it’s moving steadily under its own locution, you can jump into the market (or snatch a business from the market) at your leisure. You have the option to sit back and wait for just the right variables. Call this being opportunistic, if you want, but it’s really just good business.
You have a ton of things to look into before you sell your company, and 100 more strings to pull to make sure it continues to operate while you’re doing the due diligence and attempting to sell. This is why it is so vital to get the help you need as you go through. Outside council will come up with questions you never thought of, and they might be the difference between leaving money on the table and getting the valuation of your dreams.