Phases of Selling Your Business: Preparatory Phase
A successful transaction, like winning an Olympic medal, starts with plenty of preparation before the event. And like an Olympic athlete, if you want to be competitive, you will need a good advisory team to support you.
Tip: In Raffingers terminology, a Seller is commonly referred to as the Vendor.
Step 1: Why You Want to Sell
It’s very important for the owner to understand why they are looking to exit as this will drive the approach and directly impact the likelihood of success, and to understand that you need to know why owners start and run a company in the first place. Contrary to popular belief, it’s not just for the money.
People start and run companies for the freedom it gives them.
Conversely, the only reason an owner is ready to sell is that their business no longer gives them that same freedom.
If you still love running the company, the early starts, the late nights, then for a typical small/medium company, you will earn more money from continuing to run it than selling it. That is, financial reasons are never a compelling enough reason to sell your company.
Freedom usually manifests in 3 broad areas when selling.
- Retirement
- Change of personal circumstances
- The business has grown to a point where it’s no longer fun to work in
If any of these reasons speak to you, then you’re ready to sell.
Advice: The Raffingers advisor should help the seller understand and clearly document the reasons why they are selling, as this will be a key area of interest for buyers.
Step 2: Market Research
Market research is the process of understanding the selling companies’ sector and identifying the best strategic acquirers, where ‘best’ is usually defined as providing the highest valuation and most likely to protect your legacy.
This is the single most important job for your Raffingers Advisor, and it’s critical the vendor understands how their prospective advisors will unearth strategic buyers before signing with them.
Tip: Many brokers will not put the effort into doing research and will rather just place an advert on a couple of websites and hope to get lucky!
The initial market research creates a very broad buyer map with more than 100 potential candidates by industry & sector, with a focus on:
- Competitive Industry/product mix
- Revenue / Size
- Location of Operations
This list is then further refined by understanding the mapping between:
- Industry sector and where value can be captured
- The technology trends and barriers to entry
- Key players, domestic and international
- M&A trends within this sector and across complementary sectors
Then, with further extensive market research, it is possible to identify buyers that are a strategic fit for your company, and will therefore pay a premium above the standard sector multiple.
Examples of strategic fits include; overlapping customer bases with complementary products that can be sold to both customer bases and companies that are looking to rapidly expand into different geographies.
Advice: The Raffingers advisor should share with the seller their plan for how they will perform market research and use it to identify and then contact potential buyers.
If you have any further questions on how to start the journey of selling your business, then please click here to get in touch.