If a buyer came to the table with sufficient cash to offer you total financial security, would you be willing to sell today? According to a recent survey, 75% of owners say yes. Owners are overwhelmingly ready to exit if the price is right. The problem is that just 26% of owners believe they have no barriers to a successful exit. This figure might even be optimistic. Few owners take seriously the demands of selling a business. Even fewer begin preparing their businesses years before a sale.
Preparing your business for a sale today, before burnout, health concerns, lost value, competitive pressures, and other factors force a sale, empowers you to leave your business when you are ready, for the highest possible price. A strong exit plan strengthens your negotiating position. It can even shorten the deal making process.
If you’re ready for a sale but your business isn’t, you will face intense stress and endless frustrations as you move toward a sale. Owners lose time, and the business may lose perceived value. Businesses that are taken off of the market before they sell struggle to later re-enter the market, even when they are well prepared the second time around. When a buyer rejects a business the first time, they are unlikely to be optimistic with their second look.
Rather than rushing a sale, or waiting for a sale to come to you, take a proactive stance. Here are two simple steps for optimizing value and ensuring your business is always deal-ready.
Get a Valuation Before You Go to Market
Many M&A advisory firms and investment bankers will offer you a valuation as part of their services. If the valuation you receive is insufficient for you to exit your business, don’t put your company on the market. Instead, begin working on your strategy to create value. Even if you don’t exit the business for years, a realistic estimate of value can help you decide how much you need to increase value and cash flow. This, in turn, may provide you with an actionable plan for the future.
Boost Transferable Value
Transferable value is how much the business is worth without your ongoing involvement. If a business requires you to maintain cash flow or oversee operations, its value is greatly decreased. So if you want to leave before the business is prepared to operate without you, you must find ways to create transferable value. This can take 5-10 years of focused effort. It almost always means streamlining processes, cultivating a skilled team, and stepping back from daily operations. An experienced M&A advisor may be able to help you identify strategies for speeding the process.
No matter where you are in your career, you must prepare your business for a sale before you yourself are ready for a sale. Otherwise you’ll be operating from a position of burnout. That makes it more difficult to sell, and much more difficult to sell for top dollar.
About Kratos Capital
Trying to manage a transaction on your own is a fool’s errand. The expertise of an advisory firm can help you better understand the other side’s motivation, and then challenge this knowledge into the best possible deal. As you navigate the process, partner with an M&A advisory team that boasts expertise in your industry. Kratos Capital can help.