Overcoming Key Challenges to Sell Your Business
Preparing to sell your business is a complex process. Whether compiling comprehensive financial documents or working with external parties like investment bankers, a lot happens between the initial planning phase and the final sale.
For the unprepared, this road can be fraught with pitfalls. However, with strategic planning, proper guidance, and the support of sale readiness professionals, you and your business can easily navigate these roadblocks.
Let’s explore some key challenges you might face during the sale readiness process and uncover some actionable insights to help you manage them proactively.
At G-Squared Partners, our Sale Readiness team has supported dozens of M&A transactions, some exceeding hundreds of millions of dollars in value. Our experienced professionals assist with a variety of financial matters, from cleaning up a business’s books to leading the financial due diligence process on behalf of the seller.
Calculating a Realistic Business Valuation
Establishing a realistic valuation of your business can take time and effort.
On the one hand, you have your perception of value as a business owner, likely informed by the energy and dedication you’ve poured into your venture. On the other hand, there’s the objective market value that potential buyers will see and are willing to pay.
This divide can be troublesome. Around 42% of M&A deals fall through due to price disagreements.
One of the main drivers of this disparity between ownership and buyers is personal bias in the valuation process. For many, a business is much more than a source of income; it’s a brainchild, a dream realized, or a life’s work. This emotional connection can muddy the valuation process and inflate perceived value.
It’s crucial to ground valuation endeavors in reality. To help you better understand how to approach this task, here are several factors that influence valuation:
- Financial Performance: current revenues, profit margins, and business growth trajectory over the last few years create a solid foundation for valuation. Make sure to consider any EBITDA add-backs as these can impact your business’s valuation.
- Market Conditions: beyond the internal workings of your business, external factors like market conditions weigh heavily on the current value of a business.
- Industry Trends: some sectors see up and downswings outside general macro conditions. Being in a favorable industry with favorable projections is great for positive valuation.
- Potential Synergies: a business’s value is much more than its standalone worth. For potential buyers, synergies in acquisitions can enhance product portfolios, entries into new markets, or cost efficiencies.
While G-Squared Partners doesn’t directly advise on valuations, the insights and data preparation from an outsourced CFO and sale readiness team can prove invaluable. A comprehensive and organized portrayal of your business's finances aids investment bankers in making a more informed and realistic valuation in the best possible light.
Confidentiality and Data Security
Selling a business involves revealing sensitive information about your operation. This puts confidentiality in the spotlight. Without the right approach to securing your data, operations may falter, employee morale may dip, and your reputation may suffer.
Leaks or premature disclosures can destabilize a company and disrupt the sale.
Ensuring data is shared and stored securely is critical. Documents like NDAs (Non-Disclosure Agreements) can act as one arm of your protective strategy. They can help ensure potential buyers and other parties keep sensitive information under wraps — with violations carrying legal consequences.
But that’s just one element of data security. Here are a few more critical factors to understand:
- Virtual Data Rooms (VDRs) are secure online spaces where stakeholders can share information safely.
- Limiting Data Exposure: start with high-level data and, as trust solidifies, release more detailed information.
- Monitoring and Audits: use tools to track data access to ensure adherence to security protocols.
Data breaches not only break trust, but they can be costly. In 2023 alone, the average data breach cost firms $4.45 million in damages.
Due diligence is one of the most important stages of selling a business. It’s where potential buyers scrutinize every facet of your operation and seek assurances and validations for their investment.
Buyers explore deeply, often extensively examining many different areas of your company, including:
- Financials like profit margins, liabilities, or revenue streams.
- Operations like existing systems and productivity metrics.
- Legal areas like compliance issues, potential liabilities, or pending litigation.
- Other areas include possible intellectual property (IP) or employee contracts.
As you might expect, preparation here is paramount. Sale readiness, especially in terms of financial clarity, helps smooth the review process — saving time and streamlining the sale.
Meticulous preparation is the key to proper due diligence. The result is the mitigation of possible roadblocks. This is a key focus area of sale readiness.
Negotiating the Sale Terms
It all comes down to negotiation. It’s easy to fixate on a headline number: the selling price. But, behind this figure lurks intricate terms that can significantly affect the realized amount.
Let’s say a potential buyer agrees to a $50 million deal but insists on setting the terms.
One such term could involve 20% of the price, $10 million, being released over a number of years if the business meets certain performance milestones. If these hurdles aren’t met, you may never see that $10 million. This is known as an earnout.
Realizing this performance can be challenging, especially if you’re no longer at the helm.
This highlights the distinction between price and terms. In many situations, owning the terms can prove more valuable than the price — even if it means a lower headline figure.
While the headline number is a critical negotiable, it only represents one element of the deal. These alternate negotiables can be the real value drivers, whether it's terms around earn-out periods, seller financing, or equity rollovers.
But you don’t have to go it alone. Skilled negotiators, like lawyers and investment bankers, often understand this and work toward negotiating deals that balance price and terms, making them beneficial partners in these discussions.
Coordinating External Stakeholders
Preparing to sell a business is much more than an internal effort. It often pulls in various external stakeholders and requires deft coordination across all parties involved.
Clear communication and transparency are key to addressing concerns and limiting possible resistance or uncertainty. Without clear communication, the sale process can quickly deteriorate.
Every party plays an important role, from investment bankers and attorneys to CFOs and sale readiness teams.
It’s mission-critical that every party aligns on a unified purpose and execution. The sale can move forward smoothly without hiccups or roadblocks by proactively addressing concerns and ensuring everyone is in sync.
Retaining Focus on Managing the Business
Selling a business can be a full-time job. The process, which can span months, if not years, is intricate and demanding.
Amidst this whirlwind of preparation, negotiation, and coordination, the core operations of a business still need an attentive eye. The company still needs to meet targets, ensure employee morale stays positive, and, most importantly, lay the groundwork for future strategies and growth.
Balancing these dual duties can be overwhelming.
Luckily, business owners like you don’t need to go it alone. By outsourcing many of the financial intricacies linked to the sale process to experts like outsourced CFOs, businesses can alleviate some of these pressures — freeing up time so team members can focus on these core operations.
Read more: Four Reasons to Hire an Outsourced CFO
G-Squared Partners: Experienced Sale Readiness Consultants
Selling a business is an intricate process. From ensuring correct evaluations to coordinating across stakeholders, the journey is filled with complexities that demand attention and expertise.
Having a trusted team on your side can significantly tilt the scales in your favor. G-Squared Partners brings a wealth of experience in sale readiness to the table and can offer the necessary insight, guidance, and support you need to confidently navigate the sale of your business.
Don’t embark on this journey alone. Get the help you need to ensure a smooth and profitable process. Reach out to our team at G-Squared Partners today to learn more about our services.