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The right time to sell a business depends on a variety of factors, from the owner’s personal readiness, to outside macroeconomic conditions, to a host of considerations within the business. Too often, the investment bankers at Doeren Mayhew Capital Advisors see unprepared businesses entering the sale process because of unexpected events such as a partner dispute or an owner’s death that may result in less value for the company. While entrepreneurs cannot control market conditions, by understanding what makes a business saleable, they can be better prepared for sale due to an unexpected event or even to capitalize when the market is right. Here are six ideas to consider:
1. While audited financials are not always necessary (but recommended), it is critical that financial information is normalized, and that it not take months to provide, which can put doubt in the buyer’s mind. Having financial data readily available goes a long way in making a business saleable, and it takes time to get there.
2. Understanding a buyer’s motivation up front allows the seller to present business information in light of those considerations, which may help drive value.
3. A seller may lose negotiating leverage after the letter of intent is signed. Do not underestimate the importance of a well-negotiated LOI.
4. An understood shareholder vision goes a long way in creating a more engaged workforce and more saleable business.
5. Mentioning price first puts the seller at a negotiating disadvantage. Listen to what the buyer wants to pay before answering the question, “How much do you want for the business?”
6. An overlooked area of opportunity in preparing a business for sale is managing working capital for 12 to 24 months prior to sale. When a buyer gets the keys to the car, they need to be able to run it, and that means understanding the business’s cash requirements and negotiating the right amount of working capital target. Inadequate negotiated working capital targets mean you could leave cash on the table at sale.
If you’re considering selling your business in the near future, rely on our investment bankers to assist preparing it for sale to maximize value. Contact us today!
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