Selling a company is no easy feat. Just like running a business, the selling process can be full of ups, downs and everything in between. However, working with company owners in the sales process for over 25 years has revealed to us several key themes that owners should consider before starting the selling process. Before you take that next step, keep these five considerations in mind:
1. Revenue Trends
Is the trend line of your company rising, flat or falling? While you may think that only companies with rising trend lines would sell, there are potential buyers that would be interested in all three scenarios. However, it is true that companies with a positive trend line are most desirable, as it will drive a better valuation for you as a seller.
Most company owners are worried about cashflow – but also be prepared to be measured on EBITDA. Simply put, EBITDA is an accounting method of leveling the playing field. Ask your CPA, an investment banker or a valuation firm to run some calculations to determine your number. Most firms are sold on a multiple of EBITDA, so it is important to be mindful of what your number is.
3. Client Concentration
We once engaged with a seller that was proud of the fact that they had a single client representing 50% of their revenue. Unfortunately for them, that could be a deal killer (depending on the industry). If this single, huge customer did not care for the buyer, the entire sale could be lost. To avoid this, it is in your best interest to review your customer base and product offering to ensure any given sector is not over-concentrated.
4. Partners and Family
It may have seemed like a good idea to go into business with family or your best buddy from 6th grade – but when it comes time to sell, family and friends sometimes have differing agendas. Timing might be different, needs might be different, etc. How do you resolve that? Look for a firm that deals with family coaching and strategic planning. They can help work through the challenges and find a strategy that every partner can agree on.
5. Your Story
Take a second and ask yourself: what is your story? Are you selling for health reasons or are you ready to retire? Is it because demand in your industry is declining, or because you truly believe that the timing is right? Think through your story and make sure it is marketable.
While there are certainly many other factors to consider, use these five as a basis to ensure you are starting out on the right track. Think ahead, ask questions, invest the time, and expect the unexpected. Through planning and engaging help from the right professionals, you will be able to successfully sell your company – as well as reap the benefits that come with it.
Author: Mike Anderson
About Bridgepoint Merchant Banking
Bridgepoint Merchant Banking is a middle market investment banking firm that serves clients over their corporate life cycles by providing merger and acquisition and corporate finance advisory services. Bridgepoint Merchant Banking is a division of Bridgepoint Holdings, LLC. In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, certain Managing Principals of Bridgepoint are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC.