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June 23, 2017

Selling your business: key considerations for optimal outcomes

Businesses are built to be sold, but that doesn’t mean it is a straightforward process. There are countless details to sort out when preparing to sell your business and many questions will undoubtedly arise. Here, we address some of this uncertainty and outline a few of the most important elements for a successful sale. 

Know your price

What’s your number? Determining your selling price is about not only maximizing the value of the enterprise that you have built up through years of dedication and hard work, but also setting yourself up for the lifestyle that you are aiming for post-sale.

Planning is a key part of building up a successful business, and it is similarly important for ensuring the success of the next phase of your life. If you intend to fully retire after selling your business, how much money will you need from the sale to support your desired lifestyle? If a realistic sale price currently falls short of this figure, then it’s a sign that you’ll need to grow the business more before selling.

In the end, the price tag you settle on is up to you as the business owner. However, if you need some guidance, there are rules of thumb to fall back on – often tied to the story that your financials tell. One example is to use a five times multiple of EBITDA as a (very) rough estimate. Depending on the nature of your company, this multiple can be higher (e.g. a high-growth business) or lower (e.g. a mature-concept business)

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Timing is key

Many factors can influence your decision about when to sell, including your target price tag (as discussed above) and your age (the older you get, the more pressure you may feel to find a buyer). You should also consider how your business is faring relative to your competitors: being in a strong competitive position will put you in a better bargaining position when negotiating the sale.

At a macro level, you also need to consider factors that might affect your industry down the road. Nokia never expected to be competing with Apple and ended up paying a heavy price. Could a major shift in your industry affect your business? If you see risks on the horizon with the potential for significant disruption of your industry, you may choose to sell your business sooner rather than later – that is, unless you view the disruption as an exciting opportunity for which you’d like to stick around.

Does culture matter?

The role of culture in the sale of a business is an interesting debate. On one hand, the odds of the acquired company continuing to operate successfully are increased with closer alignment between its culture and that of the company buying it. On the other hand, buyers are typically not concerned with culture: they see the purchase as a transaction, with the numbers far more important than the soft bits.

As a result, you may face conflicting pressures. Most business owners want to see their business succeed after a sale, with continuity in terms of human resources and financial performance. Ensuring a good cultural fit with the buyer can boost the likelihood of this happening.

However, you may not have the luxury of time to find this cultural fit. In addition, you may be unwilling or unable to turn down the highest bidder despite a less than optimal fit. It is up to you to weigh these factors, and in the end, you must be prepared for the possibility that your business may not survive in its current form.

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What’s next?

Owners are often so focused on the successful sale of their business that they fail to stop and think about what happens afterwards. Yet this is an important question: what do you want to do?

As an entrepreneur, there’s a good chance that your company has been dominating many parts of your life in recent years, so after the sale you may feel like there’s nothing left. What will you do to fill this void and create a balanced life for yourself?

If you plan to get involved in a new business, you need to think through the how, what, when and where. If you prefer to apply your business skills in a different way, you may consider seeking out roles as a board member or mentor, or pursuing opportunities in philanthropy. If you plan to retire and spend your time on hobbies or travelling, you should ensure that these activities will keep you sufficiently stimulated.

Yours to build, yours to sell

As an owner, selling your business is something you should ideally be thinking about from day one so that you can optimize it from the get-go. There will be plenty of options to choose from and decisions to make along the way, and your path to the exit may not always follow the route that you expect. Ultimately, however, you are at the helm and have the power to guide this process to an optimal outcome.

 

This article was inspired by insights shared during a CEO Global Network session held in Toronto on May 3rd, 2017.

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