How to Sell Your Business for Maximum Value in the Lower Middle Market
Many business owners experience a trigger that pushes them toward selling their company. It could be burnout, divorce, a difficult partner, age, health or any number of other issues. The challenge of being “forced” to sell your business is that it does not position you for strong offers. You’re in a defensive stance rather than an offensive push.
On the other hand, when you make and execute a plan for selling your company you have an advantage. It allows you to enter the market with confidence knowing that you are prepared for the process.
CRI Capital Advisors has identified five attributes of lower middle market companies that sell for maximum value.
#1 Start Early.
At minimum, you will want to begin your focus three years out – five years is even better. This allows you to locate and fill the gaps in financials, systems, team and processes. Buyers will examine your business and look for any possible way to lower their offer. You do not want to provide them with obvious attributes that devalue.
#2 Assemble Your Advisor Team.
Whether you select CRI Capital Advisors or another firm, you need an investment banking team at your side. A good team will walk alongside you during those three to five years as you prepare to sell. They will keep you aware of the market and what indicators could lead to higher value. This service should be complementary and not subject to long-term or exorbitant retainer fees.
When the time comes for taking your company to market an advisor team also negotiates and often creates a competitive process. The more groups you have bidding for your company, the greater the opportunity for an increased multiple.
#3 Attain Professional Bookkeeping.
A buyer will dive deep into your financials to verify the profits (or losses). It’s highly recommended that you have at least three years of audited financials. Many deals fall apart because of poorly kept financials, yet this is one area that is easy to rectify.
Use a reputable CPA firm for this level of professionalism. You may feel that numbers are numbers; it shouldn’t matter who completes the work, but buyers do look and weigh the source.
#4 Consider Customer Concentration.
In general, buyers would like your largest customer to represent 15% or less of your revenue. This percentage can increase if the customer is tier one with long-term contracts in place. Otherwise, focus on a broad base of those you serve.
If you discover that your base needs some dilution, create a plan for lowering your per customer concentration that allows you to reach your goal by the time you are ready to sell.
#5 Chart Defendable Growth.
Acquirers want to see a five year upward growth trend. However, they will not take a pretty chart for granted. You should be able to defend the number and explain how you were able to achieve the growth. They will also appreciate a view of future expected returns.
When looking into the future, there is a temptation to exaggerate the revenue and net income. Usually these projections are better than best case scenarios. Consider using your proven growth to estimate what the coming years may bring.
Would you be interesting in learning what your company may bring in today’s market, request a complimentary market value assessment. Contact Paul Evans, firstname.lastname@example.org