As every business owner knows, there comes a time to sell. Whether it be years after starting your business or months after purchasing it, one of the main outcomes owners hope for is a high-value sale. While this may be a typical desire, many owners fail to put in the due diligence necessary to take their business from A to B when it comes to maximizing the value during a transaction.
With decades of experience in providing clients with transaction advice, our team knows the importance of preparation prior to embarking upon a sale. In order to maximize your return on investment, you should develop an exit strategy well in advance, with these key things in mind:
Who to Sell To
Prospective buyers range from strategic investors, institutional private equity groups otherwise known as financial buyers, management, family, and maybe even friends, etc. That being said, you must decide what your priorities are. While not always the case, selling to someone within your company’s management or family may leave you sacrificing price for the preservation of your legacy and culture.
If you’re more focused on selling for value, you may want to look into strategic and financial buyers. Strategic buyers could be either private or public companies. Most are hoping to grow by diversifying product offerings, expanding customer bases, enlarging geographic reach, and increasing productivity and profitability. Financial buyers, on the other hand, focus on investing in companies with the goal of building value and reselling. Often times, these buyers tend to seek a minority or majority stake and develop a partnership with current owners in order to focus on recapitalization.
Researching prospective buyers prior to making a deal will allow you to identify those individuals who will offer the best value.
Terms to Accept
When it comes to selling a business, owners often get caught up in the initial numbers. While this is obviously an important aspect, overlooking terms, deal structure, and net proceeds after taxes can lead to financial conflicts down the line. By remaining flexible with prospective buyers and weighing the factors of contingent payments, you may be able to increase the total value of the transaction.
It is especially important to take a look at your tax liability since you may be able to minimize or defer your taxes, which could result in significant savings.
Timing of Sale
Choosing the right time to sell can also increase your company’s value. In a strong economy, it is easier for buyers to obtain credit, thus allowing them to take on increased debt thus paying for the company. Other variables that affect a buyer’s ability to pay you what you are looking for include your company’s financial performance, current capital environments, and industry growth.
While a growing industry promotes higher demand for companies in that area, consolidation periods are also beneficial in that larger competitors may be interested in buying your company at a competitive price.
There is a lot to consider when selling your business, especially if you’re looking to maximize your company’s value. It is critical to assemble the right team of professional advisors that have experience and can provide guidance on an array of issues. Our team at Symmetrical will help you evaluate multiple options and get you in the direction of achieving your financial exit goals. #turningequityintoliquidity
Contact us today to get started.
Starting a new business is an uphill battle – there are many things to consider: who your target audience is, whether or not you want to enter into a partnership with another person or business owner, how many years you plan on being in the industry, etc. With so many decisions to make, it’s understandable that some things fall through the cracks. However, you don’t want to overlook the negative effect credit mistakes can have on your company. Not only do these mistakes have the potential to be detrimental to your company’s success, but they can also become a personal financial burden.
Symmetrical Investments is here to help you! The first step is to understand common credit mistakes so that you can prevent them before they affect your business. Keep an eye out for these common financial faults, in order to keep your company stable both now and in the future.
Failing to keep financial data
Keeping track of all of your financial transactions is crucial to staying on top of your expenses. While you may be tempted to unclutter your desk by tossing away receipts and other paperwork, make sure you are retaining this information for future record. Using online record-keeping software that files your receipts digitally could save you from losing key information, all while keeping your desk organized.
Intertwining personal and business finances
Especially if you’re a small to mid-size business, it is easy to fall victim to combining your personal and business expenses, but this decision can become sticky when tax season rolls around. Think of your business as a viable entity – create a separate checking account, use a business credit card, and consider establishing a limited liability company (LLC) or an S Corp for your business.
Late payments
Companies have to pay out certain things on a regular basis – inventory, employees, software licenses, and other expenditures. Businesses who get in the tendency of paying these late have a higher chance of failure. Keeping cash gaps as short as possible is crucial to avoid having to take out loans and debt that eat into profit.
Focusing only on short-term
Most businesses want to stay in the industry for years down the line, but they fail to plan properly. While it is important to focus on the initial aspects of starting your company, you must also think about future growth and the obstacles that you may face. It is important that you regulate your spending so that you have working capital for future investments.
Borrowing from the wrong kind of lenders
Exploring your borrowing options is also important to financial stability. Make sure you understand the financial lingo, such as the definition of a loan versus a line of credit. With increased understanding, you can make sure that you choose the loan solution that’s best for your company.
Credit mistakes are common in every company, but they’re not all irreversible, so take the appropriate steps to avoid them. The initial commitment to good credit practices may seem daunting, but our team of experts is here to help you with the process. Contact us to learn more.