Preparing for an Opportunistic Exit
Over the last year, 90%+ of the family-owned, founder-led businesses we’ve helped sell or bring on a partner were not proactively pursuing an exit at the time we were introduced. That one call they took with us changed the trajectory of their business and created generational wealth for their family. As they will all tell you, selling your business isn’t easy and unfortunately for every business that sells, there are dozens that despite wanting to transact, aren’t equipped to go through a sale process.
The challenge of selling a business is compounded by the already busy lives entrepreneurs’ lead. If you want to find the right partner, you must efficiently sort through the noise of all the people reaching out. It’s better to be proactive than reactive, so it’s imperative that you’re prepared for when the right opportunity comes knocking.
Here are 5 tips to ensure that you’re equipped to effectively handle calls with perspective buyers.
1. Know your data and anticipate the questions that will be asked of you
Questions every buyer will want to know:
- General history of the business and the owner
- Size of business (revenue, net profit, year over year growth)
- Revenue by service
- When applicable – revenue by end market (residential v. commercial, government work, etc.)
- Generic overview of customer base
- Who are your customers?
- How do you win new customers?
- Who holds those relationships?
- How long have key customers been with you?
- Any customer concentration?
- Ownership structure / capitalization table detail
- Overview of organizational chart Ownership structure / capitalization table detail
- How many employees do you have?
- W2 v. 1099?
2. Make your data accessible
Be comfortable with your CRM and accounting systems and understand how to export data into digestible reports.
If you delegate accounting to an internal controller, consider asking for monthly P&L snap shots.
3. Know your owner add-backs
Most service businesses are valued on a multiple of their adjusted net profit.
To ensure you get full credit for your profitability, make sure you have a sense of annual “owner expenses” which can include, but are not limited to: W2 salary for owner, car / auto expenses, meals and entertainment, travel, personal insurance, etc.
If you own your property and lease it back to the business, double check that your rent is consistent with the market rate
4. Know what’s important to you if a deal does transpire
Have proactive conversations with your trusted advisors to discuss succession planning
Key considerations:
- Sell out 100% or continue to own a piece of the pie?
- Ongoing day-to-day role in the company
- What responsibilities would you like to take off your plate?
- Where do you enjoy spending your time?
- Where do you add the most value?
5. Have general market knowledge about what multiples similar businesses have commanded
Don’t be unrealistic – this is the quickest way to kill a conversation with a perspective buyer
Lean on your professional network:
- Speak with business brokers, M&A attorneys, other business owners to talk to them about their experience and gauge what multiple similar companies are trading for