When is the right time to exit your business?

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Hi, did you know that even if your revenues and profits are growing, market activity can force your value to drop? To receive the optimal value for your company it’s vital that you time your sale to perfection – when business is strong and the M&A market is primed for some incredible deals.

Steve Schreiber

Steve Schreiber,

Chief Business Development Officer

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The
Test

Do you know how to secure the optimal deal for your business at exit?

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If you were to exit your business tomorrow, do you have the knowledge to secure the optimal deal? Would you be ready?

Take just 5 minutes out of your day to complete our business test and find out.

Putting aside market conditions, when would be the optimal time to sell your business?

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To receive the optimal value for your company, it’s vital that you time your sale wisely – ideally during a strong growth period. When talking to buyers, you will need to show them historical financial documents and then five years of projections. The higher the numbers in your base year, the higher your projections will be. However, even if your revenues and profits are growing, market activity can impact valuations, so to maximize your value it is essential you also consider market conditions to identify the right time to sell.

You have received an offer from a buyer to purchase your company. It’s the first one on the table and the number looks attractive. What should your next move be in order to maximize your value?

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The simplest way to maximize your exit value is to offer your company to a wider market of buyers. In order to receive the optimal deal for your business it’s wise to keep your options open, as increased competition for your business can enhance your valuation as interested buyers battle to make you the best deal. As we like to say, “One buyer is no buyer”.

Based on your knowledge and experiences in business, which of the following buyer types do you think would be most likely to offer you the best deal?

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Also known as synergistic buyers, strategic buyers look for synergies between their company and yours, in order to maximize profit that could not be achieved by one company alone. Along with financial buyers, who are able to offer you a full or partial sale, strategic buyers possess the capital to offer you an optimal deal.

There are lots of reasons why business owners choose to enlist the help of an M&A professional when selling their companies. But without one, how might a ‘DIY’ sale affect your exit value?

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Without professional guidance it could take you up to 1000 hours to prepare your business for buyer scrutiny. Meanwhile, as your focus on day-to-day operations suffers, you risk damaging your profits and worse still your sales price. By selling your business yourself you also risk significantly undervaluing your company and also selling to the wrong buyer at a reduced price.

Money can be left on the deal table for a number of reasons, including not having the right knowledge or the right buyer at the time of exit. What is the percentage of sellers who are estimated to sell their business for less than its potential worth?

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Astonishingly, 75% of business owners who do not use professional M&A advisors leave money on the table at exit for reasons including choosing the wrong buyer, undervaluing their business or exiting at the wrong time.

Packaging your selling documents can be complex and time-consuming, so it’s vital you do it right. What should you not do when creating your documentation for buyers?

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As long as you can demonstrate how any issues can be solved, being honest about your company’s weaknesses actually strengthens your credibility with potential buyers. No business is perfect and if buyers realize you are hiding your problems they may begin to question the validity of other areas of your sales proposal. Accuracy and honesty should be your main priorities when crafting your sales proposal.

As a business owner it is inevitable that one day you will have to think about moving on and selling. What is the very first step you must take when you decide to sell your company?

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Ensuring you receive a professional valuation could be the difference between obtaining the optimal deal or settling for less than you deserve. Before you move forward with the exit process, a thorough evaluation of your business should be your top priority. A valuation plays a pivotal role in the selling process as it not only protects you from undervaluing your business, but it also sets the foundation from which you can structure and negotiate a successful deal.

What might you agree to do for the buyer after the sale of your business that could improve your deal structure/valuation the most?

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If you are willing to stick around for a while and help your buyer with the transition, you are more likely to enhance both your valuation and deal structure. In fact, most buyers expect you to stay on for the transition period and could lower their offer or pull out altogether if you’re unwilling to assist. By signing a consulting or employment agreement you’re more likely to secure the optimal deal.

What are three key factors for determining whether it’s the right time to sell your business?

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If you have capital gains tax rates, interest rates and buyer activity in your favor, you could obtain a higher valuation and retain more cash at closing. Many business owners believe that their personal circumstances and the position of their company will influence when to sell, but ultimately it’s the market, determined by buyer activity, that decides if and when the time is right.

Do you realize how revenue can affect your ability to sell your company for the optimal deal? From the following options, choose which best describes your annual sales level and find out how the current market is affecting your ability to sell.

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In the current market, salable companies are usually in line with a revenue of over $1m. At Generational Capital Markets, we specialize in preparing businesses in the middle market with a revenue of $1- $100m and beyond for sale. Having already generated nearly $4 billion of wealth for our clients, those that choose to align with our advisors receive invaluable knowledge and guidance on how to maximize their value and most importantly obtain an optimal deal at exit.

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Your results…

You clearly know what to expect when it comes to exiting your business, but to achieve the optimal deal your next move should be to seek further guidance from M&A professionals. The M&A process is complex, so even the most seasoned business owners can benefit from professional advice when it comes to selling their biggest asset.

There are some areas of your knowledge on selling a business that you should refine before you take your company to market. If you want to secure the optimal deal, you will need to know the M&A process inside and out. It’s also wise to bear in mind that while you may not be equipped with the knowledge just yet, your business might actually be ready to sell.

Business owners typically are experts at running their company, but not when it comes to selling it. So even if you’re not quite prepared with the right knowledge, there are professionals out there whose job it is to educate you on the exit process and guide you to a successful sale. Even if you haven’t thought about your sale just yet, the more prepared you are for exit, whether this year or five years from now, the better the deal you’ll achieve.


Learn more at a complimentary executive conference

Whether or not you’ve started thinking about your exit strategy, every business owner needs to be familiar with the exit process and there couldn’t be a better time than now to find out more at our complimentary executive conference.

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