Understand your own goals for the post transaction period
The goals of the seller post transaction are very important as they may dictate the terms of the deal. For example, some owners want to have a clean exit with no further involvement with the business, others will want to continue to be a part of the business (for a limited or indeterminate time)in some capacity. These motivators are important for your professional advisor to know before entering any negotiations.
What is the buyer going to want to look at?
There are many similarities in selling your business and selling your home, particularly when it comes to staging your business and due diligence. The point you make the decision to sell your house, you will survey the property and decide what needs to be fixed up to help sell it, such as a new kitchen or bathroom. When a buyer comes to view your home they are going to do their own inspection, determine if they can afford it, try to negotiate for any negatives they find, and make an offer they feel matched their evaluation. You then have to see if it matches your own evaluation of the property’s value.
In a business transition, a similar process takes place. The buyer inspects what is for sale through a due diligence process. The condition of the assets, the strengths of your revenue channels, the quality of the staff and management and the contributing value of intangibles such as brand, goodwill,
market reach and many more areas will be tested and evaluated. One of the first and most important areas of a business buyer’s “inspection” will be the review of the financial statements and the strength of the cash flows.
What are you selling? What does the Buyer want?
One of the misconceptions business owners have regarding a transition is that it is an all or nothing transaction where everything related to the business, directly or indirectly, has to be included. In reality, a business may be made up of many parts other than the main product or service.
There may be real estate in the form of land or buildings. There may be multiple product lines, each with their own merits. There may be geographic locations which appeal to different buyers. In each case, the transaction may take on a different structure. A buyer may want your production and distribution but not the buildings or land. These may be written in as a lease to the buyer as a term of the purchase. A buyer may be interested in a specific location only but will still want to participate in the sales, marketing and distribution channels. The transaction may take on the characteristics of a licensor/licensee arrangement.
The point to be made here is that a transition can be flexible and creative, depending on the goals of the buyer and the seller. Working with a professional negotiator who understands both sides can devise a solution that benefits all parties.
You can’t sell a secret
The business transition process is a highly confidential process. It can be detrimental to your position in negotiations if rumours develop among employees, suppliers and other stakeholders of a pending change in ownership.
The challenge for your advisor/negotiator is to present your value proposition without breaching the confidentiality requirements. This is done through the design of a marketing plan around “Company X” that will create interest and leads without revealing the identity. This can be very important in an instance where the strategy involves approaching competitors. The advisor becomes the face of Company X and provides sufficient details regarding industry and geographic location without risking identity leaks. This protects the seller from fallout in the event a lead does not result in an offer.
What is a “Go-To-Market” strategy?
How you go to market varies from business to business. Most of the time in an SME sale, the buyer is going to come from the local market as a result of the advisor reaching out to their contacts and centers of influence.
As companies get larger, the geographical reach gets larger. Depending on the business and the sector, the go-to-market strategy will have to be designed for that target market and broadcast through the appropriate channels in that market. The larger the company, the more likely there will be more market intelligence on potential buyers both within the sector and complementary sectors.
If you have any questions or would like to have a discussion of where you and your company are in terms of readiness for a business transition, please contact us. Details are below.
Candace Enman, CA, CPA is the President of WelchGroup Consulting and has more than 15 years of financial and management experience. She has played key roles in all aspects of growing a business in both the private and not-for-profit sectors. Candace believes that successful businesses do more than keep score, they build value from the ground up, and she brings that philosophy to all of her engagements. Candace Enman| President | W: 613-236-9191 | [email protected]
Stephan May, MBA is the Managing Director of WelchGroup Consulting. He brings years of experience in M&A, debt capital, private equity, advisory and restructuring services. Stephan works with companies to maximize their value and ensure a smooth transition process, whether through buying or selling your company, financing or restructuring. Stephan May | Managing Director | W: 613-236-9191 | C: 613-724-9787 SMAY@W-GROUP.