Lessons to be learned from someone who has sold their company
In a recent article, “10 surprising lessons learned from selling my company to eBay”, internet entrepreneur, Kristopher B. Jones, founder and former president and CEO of Pepperjam details the lessons he learned during the process of selling his company.
It’s fascinating to hear the thoughts and feelings of a business owner following the sale of their company, and many of the lessons detailed by Kristopher can be universally applied.
Let’s take a look at Kristopher’s experience to see how it could aid other businesses currently in the process of selling, or preparing to sell:
Be laser focused. Something we preach to business owners on a daily basis. Sellers stand the best chance of achieving their goal if they’re laid out clearly at the earliest opportunity. Having an endgame in place far in advance helps business owners to build and mould their business to where it’s in the best position to attract the ideal buyer and achieve the optimal deal value and structure.
Zig and Zag. Here, Kristopher explains how his digital marketing company originally started trading as a gourmet food company. Possibly not the most applicable lesson for every business owner; however, whilst an extreme example, it is important for businesses to maintain flexibility. The most successful businesses always pursue the most profitable opportunities, even if this represents a move away from their traditional operations. Diversified products, services and clients are attractive aspects to buyers and operational flexibility will always stand out, adding value to the opportunity.
Make a shortlist. In a similar vein to lesson 1, it can be hugely beneficial to plan well in advance of actually placing the business on the market. By identifying or profiling the eventual buyer, business owners can perform due diligence on their company and identify any potential flaws to correct, or opportunities to pursue, enhancing the business’ attractiveness and value.
Look for a strong strategic fit. This may go without saying, but it’s important the eventual buyer identifies strong strategic potential in the acquisition of your company. Ask yourself; “What benefits would my company add to my buyer’s operation?” Work to ensure the benefits are appealing to a potential purchaser, enticing them into pursuing the opportunity.
Button up your finances. As Kristopher notes: “The M&A process is a numbers game.” It is imperative business owners get their finances in the best possible position prior to embarking upon the sale process.
With regard to financial housekeeping, there are a lot of things to consider but three things in particular are worth highlighting:
- Ensure your financial statements are adjusted appropriately in order to represent the Company’s true profitability. Recasting items that are deemed unnecessary, nonrecurring or excessive allows the buyer to view the Company’s finances without the presence of the owner.
- Separate your personal and business finances. Many entrepreneurs fall into the trap of mixing their personal and business assets which can lead to a messy due diligence period.
- Set strict financial controls, again, this will greatly ease the pressures of the due diligence process. Buyers don’t like risk, ensuring all financial processes are in place and implemented strictly eases the potential for any potential issues arising post sale.
Hire an M&A adviser. As you would expect, we consider this to be a n area of great importance. Kristopher reasons: “An M&A advisor will do a lot of heavy lifting; prepare teaser documents, write executive summaries, present your financials in the best light, and arrange meetings with prospective buyers.”
To this, we would add marketing capabilities, negotiation skills and experience. It is vital business owners instruct an M&A advisor with the capabilities to directly approach the right individuals in the right organisations, on a global scale. This is necessary to maximise the competitiveness surrounding the opportunity, ensuring the seller is in the driving seat come the negotiations.
Moving on to negotiations, good M&A advisors will negotiate as much as is possible out of a potential acquirer, giving the owner peace of mind with the knowledge that they have a party acting on their behalf who has been in this exact situation time after time. Sometimes, allowing the business owner to take a step back from negotiation situations with emotional involvement will help avoid scuppering a deal through judgement being clouded.
As well as negotiating the best possible deal value, experience allows M&A advisers to vet offers and restructure deals in order to completely meet client objectives.
Meet financial projections. It is hugely important that projected financial figures are met in order to avoid potential issues arising further down the line. Business owners should project achievable figures and avoid attempting to overstate the business’ future earnings in order to achieve greater interest as, should they not be met, the purchaser will likely lose faith and possibly back out at a time when significant legal and accounting costs may have already been incurred.
Understand your strengths and your weaknesses. Fully understanding both the strengths and weaknesses of your business will put you in a stronger position at the negotiation stage. It is in a buyer’s interest to ‘poke holes’ in your business, and, for this reason it is hugely important that owners arm themselves with a robust response to any questioning regarding potential weaknesses.
Be visible. Kristopher writes; “Make sure you maximize the visibility of both you and your business. Speak, write guest posts, and issue strategic press releases to get people talking about you.” A basic principle of marketing which all businesses will be aware of but appreciate at vastly differing levels. Businesses with high levels of industry awareness and reputation will generate greater levels of interest from potential buyers.
Keep your eye on net profit. This cannot be emphasized enough. Buyers most commonly value on multiples of EBITDA – Earnings Before Interest, Tax, Depreciation, and Amortization. The greater this value, the greater the valuation placed on your business will be.
So, there we are. 10 lessons learned from the experience of one individual selling their business. 10 lessons that can be universally applied to all business owners currently selling or considering a sale. Some of the above may be more applicable to certain situations; however, all are worthwhile considering and could possibly be of financial benefit come the eventual sale of a business.
Leaning on the experience of others is vital when looking to embark on the process of selling a company. Most mid-market business owners will never have been through this process before and can benefit greatly from listening to both business owners who have had experience in this area, and, perhaps more importantly, successful M&A advisors who travel this same path on a daily basis.