{"id":2970,"date":"2014-09-14T16:03:56","date_gmt":"2014-09-14T23:03:56","guid":{"rendered":"https:\/\/masonmyers.com\/?p=2970"},"modified":"2015-01-28T12:58:36","modified_gmt":"2015-01-28T20:58:36","slug":"lessons-selling-a-business","status":"publish","type":"post","link":"https:\/\/masonmyers.com\/lessons-selling-a-business\/","title":{"rendered":"9 Lessons Learned About Selling A Business"},"content":{"rendered":"

When selling your business, it pays to learn lessons from others.\u00a0 Most business owners will not get a second chance to do it well, and it is such an important process for your employees, your customers, and your own bank account that you want to maximize your chances of success. \u00a0I put together this list for my friends at Axial.net, a marketplace for buying and selling businesses who have also posted it on Axial.net.\"selling<\/p>\n

I have been involved in over 30 business purchases \u2013 most with between $1 million and $5 million in profit — \u00a0and have earned scars from broken deals, learned many humbling lessons, and burned the midnight oil doing my best to craft the perfect win-win arrangement. Even now, I learn something new or experience something unpredictable in each transaction.<\/p>\n

Here is the best of what I have learned about selling a business:<\/p>\n

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  1. Put Time on Your Side.<\/strong> \u00a0Most business endeavors are easier and better when time is your friend. \u00a0The opposite is also true — it is difficult to optimize the results of a business sale if you compress the time available to work all of the components. \u00a0This applies to both the time available each week and the time from the start to the finish of the overall process. \u00a0It is wise to begin thinking about selling your business well before you want to or need to. \u00a0Sometimes it takes years to craft the best trends in your business, get proper accounting processes in place, get the management team in place, and find the best investment banker. \u00a0I recommend that owners anticipate that the sale process could be a half- to full-time job by itself and they are well served by setting up an internal management structure that can keep the business on track during the months of a sale process and getting outside help (see below) to help manage the process.<\/li>\n
  2. Get Expert Assistance.<\/strong> \u00a0You will come out ahead, both financially and psychologically, when you hire an adviser to help with the process.\u00a0 The payoff will come on multiple fronts.\u00a0 First, they save you tremendous time in talking with buyers, preparing documents, and providing a buffer to allow your business to stay on track during the sale process.\u00a0 Second, they have experience navigating the sometimes confusing waters of a sale process.\u00a0 Third, they can broaden the net of potential buyers, which is very important to maximizing the highest probability and highest valuation of a sale.\u00a0 Networks like Axial.net will also help you widen your net.\u00a0 Please see below for more commentary where success is often all about finding the right fit and the right timing.\u00a0 Here is more information about how the experts can help you avoid six pitfalls between the letter of intent and closing the deal<\/a>.<\/li>\n
  3. Orderliness is Godliness.<\/strong> \u00a0Appearances matter in the sale of your business.\u00a0 It is surprising how much the appearance of your records, reports, files and processes can impact how potential buyers view your business.\u00a0 I think this is because every impression is important as buyers are operating with very little information so every little thing leaves an impression.\u00a0 Being organized conveys to buyers that this is a well-managed business.\u00a0 And, it will save you tremendous time to be orderly and organized when it comes time to produce documents and many other things for the buyer, particularly during due diligence.<\/li>\n
  4. GAAP Accounting.<\/strong> \u00a0Make sure you speak the language of business, banks, and investment professionals. \u00a0For some business owners, selling a business is like entering a foreign land where the primary language is GAAP and EBITDA. \u00a0To operate effectively in this foreign land, you need to understand the basics of GAAP (Generally Accepted Accounting Principles). \u00a0I have had business owners tell me that “cash is all that matters”, or that “I have my own way of accounting that works for us”. \u00a0That is fine, but investors will not understand your particular language very well. \u00a0Therefore, you need to make sure that your financial statements are presented using GAAP and it is often worth it to hire a firm to do a review, an audit, or a Quality of Earnings analysis to get your company prepared and ready. \u00a0Here is more information about how strong accounting and reporting can pay off<\/a>. \u00a0The number one pitfall can be situations where the business receives cash before delivering the product or service. \u00a0To business owners, they often consider that cash to be revenue. \u00a0In GAAP, that is not revenue until the product or service is delivered, and this can make the company’s revenue appear dramatically different. \u00a0There is nothing that hurts your credibility more than financial results that are significantly different when prepared via GAAP — it just makes you look unprofessional and naive.<\/li>\n
  5. Getting Key Contracts and Leases Assigned to the Buyer.<\/strong> \u00a0A wise investment banker once told me, \u201cno one is more arrogant than a landlord in a tight market.” \u00a0That is true, and unbelievably frustrating when a landlord is holding up the sale of your company. Most stopgaps occur because the landlord will not assign the lease to the new owner or he is using this point of leverage to extract some economic concessions from you or the buyer. \u00a0I recommend that you begin to review your key contracts and leases years in advance of the sale and attempt to get them “assignable” at your option to avoid being “held up” by a landlord or key customer.\u00a0 This happens all the time.\u00a0 Right now, I have one acquisition being held up by landlords trying to extract value for assigning the lease to the new buyer.\u00a0 And, I have another acquisition that has been held up for 3 months while a few large Fortune 500 companies are reviewing some key customer contract assignments.\u00a0 It is not good to have your big sale held up by these factors.<\/li>\n
  6. Monogamy Happens at Different Points for the Buyer and the Seller.<\/strong>\u00a0 In the balance of power, the seller is usually most attractive during the early part of the process since there are multiple buyers considering just one purchase.\u00a0 However, once the seller selects a buyer and signs a Letter of Intent, the seller becomes monogamous and loses some of that advantage.\u00a0 It is important for sellers to understand that there is still much that can distract or dissuade the buyer from that point forward.\u00a0 The due diligence better check out.\u00a0 And, the buyer could easily get distracted with other deals, or other companies in their portfolio, or their cousin Vinny who loses the family fortune.\u00a0 The seller is wise to keep wooing the buyer all the way until the closing. \u00a0\u00a0To ensure a successful close, business owners should keep the underlying business performing (frankly, it is really good if the business results keep getting better during the sale process), keep impressing the buyer with various elements of the business, and understand that the buyer is not married to the deal until the check clears the bank.\u00a0 At some point, sellers need to transition from adversary to partner with the buyer, and they also need to keep reinforcing the attractiveness of the business until the deal is done.<\/li>\n
  7. Selling a Business is All About Fit and Timing.<\/strong> \u00a0\u00a0Along with everything else, selling a business is a numbers game.\u00a0 Here is more information about finding the best fit and timing for a deal<\/a>.\u00a0 You need to find a way to maximize your chances that you will find several buyers for whom your business is a great fit and the timing is perfect.\u00a0 For many buyers who may be great for your business, it may be bad timing as they are focused on raising money for their fund, or one of their portfolio companies just became distressed, or the partners are fighting.\u00a0 There are so many things behind the scenes that affect how buyers behave that you will never know what is truly happening in their minds.\u00a0 The best strategy is to cast a wide net, determine who is interested, and do not waste time with any other buyers (even when you think to yourself, “they would be perfect!”).<\/li>\n
  8. Everyone Freaks Out Sometime During the Process.<\/strong> \u00a0\u00a0In nearly every purchase and sale I have seen, there has been a moment when the business owner has freaked out.\u00a0 This is quite normal and usually a good thing (better to have seller’s remorse before the deal happens) as it allows everyone to step back out of the details and make sure the deal is really a good thing for all involved.\u00a0 It is such a grueling and emotionally charged process for many owners that there is quite often a moment when they question the transaction. \u00a0When you do freak out, please don\u2019t call the buyer names. \u00a0Just this week, I had a seller call me all the names in the book because they misunderstood something only to realize it was their error.\u00a0 It is no one person\u2019s fault that the process is frustrating and time-consuming.\u00a0 Most everyone is trying their very best to do the right thing.<\/li>\n
  9. Control the Lawyers.<\/strong> \u00a0One business owner called the process the “tyranny of the experts”.\u00a0 When you have not sold many businesses, it often feels safe to rely heavily on lawyers, bankers, accountants, and others from the expert universe.\u00a0 This is important to a point.\u00a0 It is also important to not let them drive the process too much.\u00a0 You are the decision-maker.\u00a0 You have good business judgment.\u00a0 If you have questions, ask them.\u00a0 Ultimately, however, you will need to make the business decisions about how to do the deal (is the lawyer trying to impress you or helping you get a deal?).\u00a0 There always comes a moment where everyone must tell his or her attorneys to back down and get the deal done.<\/li>\n<\/ol>\n

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