You Need an A-Team
"I pity the fool…." Ok, not THAT A-team. But we do "love it when a plan comes together."
Once you've decided it is time to sell your business and have developed the why, what, when, and won't of your exit strategy, you'll start the presale planning process. Presale work is a three-step process that includes building your A-Team, confirming your company valuation against your advisor's valuations and accessing the gaps and finding ways to mitigate those gaps, and gathering all financial documents needed so you can quickly present them to a qualified buyer. If you do this, when a buyer calls, you can hand them the information they need without distracting your team from running your business. One of the most important things you can do before you start the sale process is to build a star A-Team
Building A Star A-Team
Your A-Team is an objective trio of professionals with unique skills to help get you through the sale. Specifically, your team will include a business advisor (also known as a business broker or investment banker), an attorney, and an accountant. Your A-Team is not only best suited to handle the details of the sale, but when it comes to negotiations, they will also be the only objective party acting on your behalf. It is difficult for a seller to remove emotions from the selling process, which can dramatically and negatively impact the outcome of a sale. An advisor, however, can. This is why it's critical to build your A-Team the minute you decide you want to sell.
Your A-Team is critical to your pre-sale planning process. Do your research and find a team that will work best for you.
When I sold one of my first companies, I had no experience, no guidance, no idea what the selling process was like, and no idea what I wanted from the sale. I ended up going with an investment banker as an advisor. He had sold another business in my industry, so I thought he'd be the right fit for the sale of my next company, too. I assumed that experience selling within a particular industry was all that mattered. That was a mistake. It was like listing a house with a realtor who knows the area versus listing with one who really knows the real estate industry, the market, and how to market a specific type of home within that market.
I knew my business and my market but didn't know anything about marketing it for sale, so I hired an advisor because I thought anyone would yield the same results. I gave my advisor my listing, he stuck the sign in the yard—which in my case meant making a few calls—and I then had an offer to consider. When you're selling a business, this tactic can be dangerous. It can lead to results that have nothing to do with your exit strategy, which, of course, ends in regrets.
I should have found an advisor better suited for my situation. I should have gone with someone who would have asked if I had an exit strategy—I didn't. The right advisor would have said, "We can't start this process without an exit strategy." The right advisor would have asked if I wanted to stay on after the sale, what I'd want my role to be, whether I'd considered that the buyer might consolidate, and what I wanted for my employees. Finally, he or she would have asked, "How do each of these elements impact sales price?" Whatever your particular needs are, no matter what size or type of business you're selling, hiring the right advisor for your sale is a critical component of presale planning. Their expertise is their value. It's what will guide you through the sale. They should look at your exit strategy and make sure that your sales outcome aligns with that strategy.
An "A-Team Kind of Sale"
For the third company I sold, I found an investment banker that was perfect for what we wanted, and we were able to tell him what we did and did not want from the sale. The investment banker advised me well, but I also was prepared before we hired him. I knew what questions to ask of him.
Deciding what you want from the sale will impact your selling price. Good advisors understand this, and they work hard to ensure you don't simply get the best deal in terms of dollars and cents, but that you get the best outcome for you—one that follows your exit strategy and leaves you with no regrets.
You Get What You Pay For
Far too many sellers forgo an advisor because they think they'll save money if they do the deal themselves. Let's return to that real estate example. People hire realtors because they know how to market, know how to price houses, and can often find buyers the homeowner wouldn't find if they just stuck a for-sale sign in the yard. They provide value. The same is true of an advisor. Sure, you will pay your advisor a percentage of the sale or a success fee, but a good one is worth his or her weight in gold. They get you more than you expected, which will offset their fee, so you net more. Not only can advisors get a better financial outcome for your sale, but they can also make sure your sale aligns with your exit strategy, so you leave with no regrets. This is particularly important if you decide to stay on because negotiations can get heated and having your advisor's clear head during those negotiations is valuable.
Without an advisor, you'll quickly get buried in requests about the sale that will pull your attention away from your business, potentially harming your value. An advisor will guide you through the sales process so it does not consume your time. He or she will also step in when your emotions get in the way of a negotiation. For example, the advisor might tell you when to stop arguing a point and then show you how it doesn't benefit you or your exit strategy.
As the quarterback of your sale, your advisor will not only direct a sale that aligns with your exit strategy goals but he or she will also advise when—and if—you need to hire additional team members. When this occurs, your advisor may recommend a few attorneys and accountants known to have good reputations in your area and who specialize in the type of advice you need.
Hire Your Other Aces
Your accountant, who will likely be a tax specialist, will help with the valuation of your business, audit your numbers, and make sure your generally accepted accounting principles (GAAP) are in order. A tax specialist is critical for tax planning because he or she will clarify what you will actually net from the sale. The tax specialist understands an asset sale versus a stock sale, your investment basis, what you have in the business, and capital gains versus personal income and how that will impact your tax burden. He or she knows what you can expense and what you can't.
Not only can your advisor help you find a tax specialist, but he or she can also help you find an attorney. There are many types of law, but you want representation from a mergers and acquisitions specialist when it comes to selling. These specialists understand the ins and outs of selling a business and can help the advisor negotiate with the buyer's attorney. The attorney drafts, reviews, edits, and revises agreements, including letters of intent, purchase agreements, representations, and warrants.
Choose your top players wisely. They're the ones who will hep you execute your game plan - in this case your exit strategy - so you win!
Choose an Advisor That’s Right for You
Your advisor is the leader, or the quarterback, of your A-Team and is, therefore, the most critical hire. This advisor may be a business broker, an investment banker, or a mergers and acquisitions (M&A) firm. Each essentially does the same thing; however, some have larger teams. The size of the team typically coincides with the size of the company, so the larger the company, the larger the team.
Your advisor will market your business by helping develop your marketing plan, designing your marketing materials, and creating marketing campaigns that will be useful when you go to market. He or she will also vet each interested buyer's ability to close a sale, keep the sale confidential, and negotiate the terms objectively, without the emotions you as a seller might have getting in the way. Your advisor is in the foxhole with you. They are there to watch your back and make sure you come out with the best deal possible financially and emotionally.
The type of advisor you hire will depend on the type of your business, the size of your business, and the outcome you want from the sale. How you choose your advisor will largely depend on your chemistry with the advisor, the size of the sale, the type of service offered, the buyer, and the level of expertise needed for the sale.
If you're ready to sell your business and need an advisor, Paradise Capital can help. Our team of experienced professionals will come along side you to build a star A-Team, get your business ready to sell, watch your back, and make sure you come out with the best deal possible financially and emotionally.
If you're thinking of selling and haven't yet developed your exit plan, read my story of successes and pitfalls in selling and buying businesses, No Regrets, How to Exit Your Business Emotionally and Financially Strong. You'll learn from some of the bumps I navigated and why we're passionate about helping business owners plan for a successful exit so they can enjoy their next chapter—with no regrets!
Paul Niccum is a Business Strategist and author of No Regrets, How to Grow and Then Exit Your Business, Emotionally and Financially Strong! and GrowNOW! Your Fast Path to Growth.
After building six businesses and selling numerous companies to publicly held companies, Paradise Capital CEO Paul Niccum has faced the sa
me fears and emotional concerns that all sellers face. He's both a seller and a buyer—Paul has also acquired eight businesses for his own companies and has been involved in the sale of over 100 companies during his career.