10 Steps of selling a company or business

10 Steps of selling a company or business

I got a call last week one of my good friends who runs a very successful business and as we were going through the conversation together. The topic of selling his company came up and he got nervous. He said well I've run this business all my life. 
If you are the entrepreneur, the founder, the CEO or a partner in a company and you are wondering should we sell or not. Never sell a business, you're going to get a lot of clarity from this article. 

These twelve points are gonna give you a lot of clarity. Some of them are gonna be points that maybe you haven't even thought about yet.  Because look you may have done nine million last year or ninety-two million dollars of revenue last year maybe you did 1.6 billion dollars last year. 

These twelve points are gonna give you a lot of clergies and by the way, stick around.

1.   Why are you selling?

One look the first thing you have to ask yourself before even think about selling your company is

• Why do you want to sell in the first place?
• Why are you tired or burned out?
• Are you not taking any time up with your wife or with your husband?
• How's your personal life?
• Are you being forced about your partner's your vendors,
• Maybe one of your investors is buying you out and no one knows about it
• Maybe one of your big customers is saying look you're too big we can't give you this much control we got to buy you out.
• What is the reasoning?
• Do you simply just want to retire and go live by in a beach house and hang out and have the money and enjoy the restaurant?
• What do you want to do?

See, these are all questions you got to ask yourself. I'd go through by the way some of these I'm giving you believe me. 

Many people call me and they want to come and give me $20,000 say. I want to sell my business can I sit with you for two hours because I need advice with you my partner's want to come to you. This is something you got to do with five other people sit with who have sold their businesses and afterward they change their minds and they said I wish I wouldn't have sold it. 

And some that did sell it and they made the right decision? I do what you're gonna get a lot of counsel to know whether it's a good time for yourself right now or whether it's not.

2.   Meet with an M&G Banker or Broker:

Once you've addressed why you want to sell the company and satisfied with it. 
The next thing you need to do is, get educated and the way you do it is by meeting with an M&A broker or a banker. 

This is a merger and acquisitions banker this is what they do for a living. These are guys who have contacts with lots of money. 

Some are billionaires and some are worth a couple hundred million dollars. They are looking to buy businesses and this is how simple it is. 

So let's just say I'm Johnny I'm the M&A broker I'm the merger and acquisition broker. I know Bobby. He's one of my clients is worth a billion dollars. Bobby wants to buy businesses I introduced him to Cindy. Cindy's business is worth a hundred million dollars. Bobby by Cindy's business. Without me, Bobby doesn't meet Cindy and Cindy doesn't meet Bobby that a hundred million dollar transaction that takes place. 
I get two to five percent on that deal, which means two to five million dollars for making the contact that's what the M&A brokers do.   

Now you realize when you meet with these guys. You got to know what they do that's how they make their money. 

So when you meet they're probably gonna ask you a lot of questions. 
What's your profit? 
How many employees do you have? 
Who else is on your team? 

They can ask you many different questions like 
What; 
do you think your company's worth? 
do sellers think your company's worth? 
an investor would want your business? 
You go through this process and this entire sit down with three M&A K bankers. It's gonna be as if you went to university for three years to learn how to sell your company.

3.   Set Timeline Expectation:

Look once you figure out why you want to your business and you're comfortable with it. Then you meet with the M&A broker.

Now you're getting educated about what the market looks like. Now it's about setting timeline expectations of when you feel comfortable even having the conversation.

You may say three years I'll have the conversation, five years I'll have the conversation or ten years I'm open to it. 

Now I'm very happy I burned out a little bit. But all I needed to get away, maybe I'm gonna go on a vacation with some family. Because what I'm doing here with this I'm good to go everything makes sense to me great even when you set the time on expectations. 

Things could change the economy, our new president could be elected, and regulation could change. 
You still have to be nimble enough to know what's going on with the marketplace and knowing that your own timeline could still change. 

However, you have to mentally get to a place to say I'm comfortable for this 2023. So now have to work backwards, to ask myself where I need to be six months from now, twelve months from now, 24 months, 136 months from now. I'm getting ready for the day that I may sell the company.

4.   Know your exit strategy

Once you've set your timeline you're saying I'm comfortable seven years from now having a conversation five years three years. 

You know how you need to work back the next thing. You need to think about is the following your exit strategy. Meaning who is an ideal buyer for you. 

Is your ideal buyer anybody with a checkbook because you can go to New York and sit down with a PE firm? Who is willing to cut a hundred million dollar check to you based on the profits that you make. 
They don't really look at your business, 
They don't really look at the heartbeat, 
They don't really look at that stuff? 
They simply look at the numbers and they say well?
Or It's a strategic buyer one of the current people you work with. 

You know they need your technology, you know they need your shipping, you know they need certain things that you have that without you, they're gonna be in trouble. 

So they may come in and pay twice as much as these guys are gonna pay because you have something they need. But who is that person gonna be for you? You need to identify that from now start thinking about that.

5.   Define Your Buyer:

Now you have your numbers, you know your exit strategy, you know who you want to be your strategic partner to buy your business. 

You're comfortable with that. 
Great! 
No problem you know your timeline, what do you expect from these buyers? 
What kind of buyers are there?  
By the way, there are four different kinds of. I've met every single one of them and I've dealt with every single one of them.

The first one

It's a person who's very interested in your business, would love to buy it. But they can't afford it.  This is like a person who goes through a Ferrari dealership and they want a Ferrari. They love Ferraris, but they can't even afford to buy it. That's the first one

Second one

The second one, it's a buyer that can buy ten of you but has no interested in your business. No problem.

Third one

The third one, ready this one's a little tricky! 
This is the one that's disguised as a buyer. He comes in showing so interested, but he has no interest in him buying your company. 

He only has one thing in mind insider information because he wants to leak it to competitors. They know exactly what's going on? 
They're trying to study. 
It's like a realtor that acts like a client and a buyer and walks into the house, saying oh wow this is a nice home, what do you? 
Are they going through a divorce? 
What's going on with the husband-wife can you tell me? 
It's a realtor, not a client. That's what happens with some of these guys as well.

Last but not least

Last but not least it's the kind you want to sit what's a person who is interested has the money and would like to cut a deal with you, that's what you want to meet with but you need to know the different kind of buyers they're gonna sit with you.

6.   Increase Value of Your Company:

Now that you know your exit strategy, now that you know what kind of buyers are gonna come knock on your door to want to buy your business. 

What can you do in the interim to increase the value of your business? 

What could you do it's like I want to sell my house, but maybe it doesn't look that good. I've got to paint that house, I got to clean the garden the backyards kind of messy. Maybe I got to spend an additional fifty hundred thousand dollars to increase divide the company by four hundred thousand dollars. 

So in the interim what could you do hire a new CFO (Chief Financial Officer)? 
That kind of knows what they're doing that's been through this process before. Could it be technology, could it be increasing sales, could it be extending your contracts with your customers or your vendors or suppliers? There are certain things you can do today to increase the value of business between now and the day you sell your business.

7.   Call Lawyers and Organize Contracts:

The next thing is a little dirty because you got to start dealing with attorneys. 

You know how I feel about attorneys, by the way, I'm not a fan of 80 percent of attorneys. But when you find a good attorney, you got to keep them, you got to bring your attorney. Spend a little bit more money and get the attorney to update every single contract. 

Bring it all in one place because when somebody buys a business, they're looking for all the contracts, all the agreements. They’re really relying on this stuff sometimes. The value of a company is based on the contracts and the agreements that they have with their vendor partners all those different kinds of people you were dealing with.    

8.   Find CPA’s and Hire Regional Team:

Now we've got to talk to your CPAs and by the way, there are a few things you got to be thinking about when it comes down to CPAs. 
Here's a couple things, one what is the buyer expecting to see with your finances. This is what a buyer likes. 

I am NOT a fan of businesses once they cross $10,000,000. Your business to still deal with a friendly local CPA, I'm not a fan of that. A friendly local CPA is good if it's one office shop and you're doing a couple million you're fine they can handle that. 

Very impressive audited Financials could cost twenty-five two hundred thousand dollars depending on how the business is. It could cost millions of dollars. But I'm saying a business that that's 50 million. Your hundred million dollars a year could cost you between 25 to 40 thousand dollars 25 two hundred thousand dollars you're doing. But it's audited Financials and the most consecutive years you have audited Financials, the buyer likes this the value goes higher.

Explain

Let me explain it in a way that makes sense to you. 

Look if you want to buy a house you've got to get your credit score done earlier to know where you're at. Because you're gonna know why is my score 620 here, why is it 6:30. 
I know I'm not gonna get the best interest rate. So you first fix you credit then you go see if you're gonna get a proof or million dollars home. 

It's gonna be the difference between you paying you to know forty-nine hundred dollars a month for mortgage payment versus $7,300 my for mortgage payment because of your credit score. 

So this is the difference between a buyer wanting to buy your business for 180 million dollars versus buying it for ninety-two million dollars. That's a big difference. I like baseball cards I don't buy baseball cards that are not greater by PSA. I don't buy them because that gives me credibility. 

The same goes that a buyer buys a business that has audited financial from a very good size good name accounting firm.

9.   Have a Good Story For A Buyer:

Let's just say at this point you've done your attorney stuff, you done your accountant stuff, you're ready. It's that time you already through the five years from now to go out there and start putting your business in a marketplace. 

Are you ready to tell your story? 
How are you gonna sell your story? 
What is your story? 
Is your website aligned with the way you want to tell your story? 
Is it updated? 
What does your home office look like? Is it an updated home office? 

There's a look like the businesses within your industry where somebody comes in and say wow I like the way these guys dress up here. 
What is it? 
Do you have proper marketing material? 
You have a pitch deck 
What does your presentation look like? When you go and say. Hey, here you go mark you the material marketing, material marketing material, marketing material oh wow this is good stuff high-end stuff. 

You may want to spend a little bit more money before you present your business to buyers, that you are expecting to cut a big check for you. So you got to spend some time getting your story together and your website marketing, Home Office, all of that stuff it's part of the story.

10.   The Negotiation Process:

It's that time like a fourth quarter type of stuff. 

Typically, owners take two different routes; 
One is the owner says, I don't need anybody's help, I don't want to pay anybody a 5% broker fee. I know how to sell the business, I don't need anybody so and they go by themselves. It's one of the ways you could do. 

The other way is you go and hire somebody, you hire a team, you hired the M&A broker the banker and they come and help you sell. 

Now, why is that a good thing well, I typically believe in capitalism because a lot of people make money for the unit. If a lot of people make money together and you put the tiers of bonuses based on what amount they sell it for. You're probably going to sell it for a higher number than you thought we're gonna sell it. 
I lean more towards this side, especially if you're dealing with a hundred million dollar plus check.  Go get a pro. Some of you that are not good in sales and you're selling for 10 million you still go get a pro. 

So these were the 10 steps of selling a company you should follow before selling your company. By following these steps of selling a company will prevent loss.