Every business owner comes to a point in their career where they start thinking about an exit plan. That strategy can be in various types of structures including an employee buyout, family passing, merger/acquisition, etc. In the circumstance of a sale, there are some things that an owner should know going into the process.
Selling a company is something that should be thought about years before a seller wishes to fully be removed from a business. A standard expectation for an acquisition to fully go from start to finish, can range from 12-24 months. The range of this timeline will depend on several contributing factors such as the type of industry, extent of confidentiality, size of business, strength of balance sheet, state of operations, target acquisition price, etc. Not only can the selling process take a substantial amount of time, but an owner may want to start prepping his business for a sale anywhere from 1-3 years prior to engaging any brokerage services. Buyers (and lenders) are looking for strong, clean, and stabilized financials in a business, and typically look back at least 3 years of historical performance. This makes it very important to maximize sales and profitability for these preceding years leading up to a sale, while keeping the company books as clean as possible.
When it comes time to engage the option of a sale, it is first important to understand the fundamentals in valuing a company. For these services, a seller has the option of executing this analysis himself, or hiring an outside party to assist with these services, such as a business broker or a C.V.A (certified valuation analysis). All companies will have different internal and external factors that will affect value, so it is crucial to look at all variables when arriving at a final number. For example, one of our recent closings was Bookcliff Gardens, a retail nursery and landscaping company, which involved a lot of moving parts when it came to the valuation including large amounts of equipment, assets, inventory, cash flow, real improvements, real estate, and more. In contrast, another recent transaction that we closed was Columbine Caregivers, a home health care agency that was valued on historical cash flow, brand name, current clientele, staffing, goodwill, industry demand, and more. Being that no business is the same, there is no “cookie-cutter” way to arrive at a valuation, making it essential for a business owner to perform proper due diligence, or to consult a professional when going through the valuation stage.
The next step is typically the largest bottleneck in the process, which is sourcing a buyer. This is a very delicate task because of the high level of confidentiality it requires, as well as the importance of vetting out credible and integral prospects. The time it will take to find this perfect fit will vary based on the type of business being offered, as well as the amount of effort being put forth to locating a buyer.
Once a buyer is found, then begins the negotiation and transactional side of the process. In a business acquisition, there are many variables to consider and negotiate with a buyer, each possibly having large long-term implications for both parties. These various factors are far more involved than other asset or real estate transactions, and it is important to perform sufficient due diligence or to lean on proper representation during this process. This period typically takes approximately 60-90 days, which will greatly depend on the buyer’s financing plan. Traditional lending routes take the longest to complete, which would include small business loans, private equity, conventional loans, CHFAA, etc. Other routes for financing typically lead to quicker closings, which may involve owner carry purchasing, cash transactions, gradual buyouts, etc. Once officially closed and funded, a transition period that typically occurs between the buyer & seller is essential to give the buyer any training/support necessary to successfully operate the business while sustaining quality, reputation, and culture in the company. This period will vary, but averages from 60-90 days.
Overall, selling your business is a very diverse and impactful process for all stakeholders in the entity. While it can be a long and involved procedure, it is important to go about the process the right way and to stay thorough in order to create a successful transaction that is a win-win scenario for all parties involved. If you’d like more information regarding this process, or would like to discuss our involvement in these services, please feel free to reach out to set up a private consultation.