Woman Talking to Man in Cafe

The ideal time to think about the sale of your business is before someone makes an offer. Exit planning can prepare you for that unsolicited call and help you secure a more favorable deal.

Preparing for transition

Before a Buyer Calls, Prepare to Sell Your Business on Your Terms

  • Dave Pieton
  • 11/5/2019

Out of the blue comes a phone call: Someone wants to talk about buying your business.

The timing is great because you’ve been thinking about the possibility of a sale, but you never took the next steps. Now the retirement you’ve dreamed about may actually be within reach. But are you really ready to sign on the dotted line? Have you done your homework to find out what the business is worth? An unsolicited offer may seem like a windfall, but it forces you to face the future without a transition roadmap.

This decision to sell deserves the same passion and intensity as you have invested in making the company successful in the first place.

This scenario seems to be happening more and more as record levels of corporate cash and private equity float around in a competitive M&A market. As a business owner, an unsolicited offer is typically not the best way to begin the process of selling your business. By doing basic exit planning work ahead of time, you can prepare for “the call” and optimize the value of your company for a more favorable deal.

Don’t get caught flat-footed

This decision to sell deserves the same passion and intensity as you have invested in making the company successful in the first place. But every situation and every business is different, so there’s no sure-fire way to pinpoint the moment when you should start planning for a transition. Some recommend at least five years before an anticipated retirement, sale, or transfer to new ownership.

Take control of the process

Sophisticated buyers are employing business development professionals and third-party buy-side brokers to make cold calls and find owners who are open to a sale. Their goal is to enter into a proprietary deal and avoid a competitive bidding situation.

By the time they talk to you everything will seem to be in order and ready for your signature, but you should keep in mind whose interests the buyer is looking out for. Pro tip: It’s not yours. The buyer is counting on you not having up-to-date knowledge on the value of your business, or having other offers to gauge the terms of the proposal against. The imbalance of experience and available information favors buyers over first-time sellers who are not prepared.

What’s more, you’re not likely to have the internal resources or time to handle a favorable sale by yourself while simultaneously running your business. When a third party is representing your interests, speculation and rumors among employees and vendors can usually be avoided.

Nine essentials of exit planning

You know how to run your business, but it’s likely that you don’t have much (if any) experience selling a business. So before there are any offers and counter-offers on the table, you may want to engage an exist planning team that includes investment bankers, transaction advisors, valuation professionals, tax and estate planners, and wealth advisors. Expect these professionals to:

  1. Evaluate your business and perform due diligence — Determine key value drivers and areas for improvement to increase the certainty of closing.
  2. Establish the right M&A process and strategy — Identify prospective buyers based on your criteria, devise a marketing strategy, and prepare marketing materials.
  3. Market your company — Obtain intelligence on potential buyers and determine their ability and genuineness to close.
  4. Improve your credibility — Create a competitive atmosphere where buyers know you are serious about a transaction and about any other buyers at the table.
  5. Reduce uncertainty and emotional hardship — Help you gain a better understanding of the process and expectations.
  6. Manage the sale process— Facilitate buyer due diligence, negotiate transaction terms, and hold buyers accountable to avoid re-trading and last minute changes in terms.
  7. Enable you to focus on day-to-day business operations — Third-party involvement can also keep the process confidential until a sale is announced.
  8. Negotiate the transaction — Ensure that key terms meet your objectives and reflect favorable market terms.
  9. Structure and close the transaction — This may involve tax, financial, and legal advisors to maximize after-tax proceeds, minimize risk, and hold the buyer accountable to the timeline.

How we can help

No matter how far along you are with your exit planning, we have a broad range of value-added resources to offer under one roof. CLA seamlessly coordinates investment banking, succession planning, transaction advisory, and valuation with tax, estate planning, and wealth advisory services to help you achieve a sale on your terms.

Merger and acquisition, wealth management, and investment planning services are offered through CliftonLarsonAllen Wealth Advisors, LLC, member FINRA and SIPC.