The (Un)censored Guide to Selling Your Business
Rob Munro shares straight-up insights from the trenches on what to really expect when selling your business.
Here we go. After months (or years) of careful deliberation, the decision to sell has been made. It’s a huge decision and no doubt, (should have) involved heart-to-heart discussions with advisors, family, and friends. Being a prudent business owner, you’ve done all the requisite research into what to expect during this process. You’re ready to launch Project “Show-Me-The Money.” Now what…?
I’ve always believed true success to be the sum of good planning, tenacity and being mindful of the “devil in the details”. Yes, you must make all the right BIG decisions but getting a sale completed requires lots of the right little ones as well. I’ll skip over some of the usual words of wisdom that every other M&A Advisor lists in their blogs (and maybe we have too(!)) and share some insights I’ve gathered over the past 20 years that are a little less obvious.
IT WON’T GO AS PLANNED. That story about the guy who sold his business in two weeks for fifty times revenue may be true but get your head around the fact this won’t be your experience. But don’t fret, being armed with this knowledge ahead of time will go a long way to calming your nerves. Like any project, it’s vitally important to, “plan your work and work your plan.” (read my Top 5 Pitfalls article for more insights). Careful, thoughtful, and well documented step-by-step milestones will help keep everyone’s “eye on the prize” when things get a bit hairy. The best thing you can do is stay level-headed, focus on making sure your business continues to perform and be open and flexible to every aspect of the process.
YOUR VALUATION ONLY MATTERS IF SOMEONE’S WILLING TO PAY IT. It’s almost universal for valuation to be the first thing potential clients bring up when meeting with us. Look, it’s important, we know, but selling your business is NOT like selling a car. No matter how similar you think you are to another business, the fact of the matter is, you’re not. The sum of all these nuances is what makes you great, but it’s also why trying to peg your valuation to others is flawed. Building on the car analogy, it is, however, possible to ballpark a valuation IF you generate similar metrics as other companies. If your business has followed a somewhat predictable path for at least a few years, a starting point can be a valuation multiple on measurable results such as adjusted EBITDA, ARR, etc. Prior to engaging with an advisor like us, ask them to provide a valuation range based on current market expectations. That said, if your business does not fit nicely into an existing valuation box, the onus shifts heavily to you to explain and rationalize a valuation you feel justifies your hard work.
YOU’VE GOT TO BE ALL IN. I’ve been a part of a lot of transactions, and after so many, you develop a “feel” for what works and what doesn’t. One of the biggest influencers on success is the sellers’ true commitment to the process. True commitment means being “all in”; emotionally, physically, and monetarily. Selling your business should not be something you tiptoe into. We’ve turned away potential clients wanting to engage us to “test the waters” and see what price they can get. This is a classic example of not being “all in” and to add to that, going to market once unsuccessfully will tarnish your company when you decide you’re actually ready to sell.
THERE'S A GOOD CHANCE YOU WON’T MEET YOUR BUYER UNTIL AFTER YOU’VE COMMITTED. This may seem a bit weird. Imagine selling your house but instead of getting an offer, you get an indication that someone is possibly interested in eventually buying your house as long as you commit to only them. Even more strange, they get to meet (and evaluate) your family, check out every nook and cranny of your house and access your bank account BEFORE definitively committing to the purchase. That’s the experience when selling a business and, ironically, it can’t be any different. Every business is unique, no matter how similar they may seem, and this means a potential buyer must really get to know you before closing.
YOU WILL HAVE TO ANSWER TOUGH QUESTIONS. We all have things we’d prefer not to talk about, especially with a complete stranger, and up until now, you’ve never had to. That thing…that happened a few years ago…that really affected your business...will come up. Some financial analyst will “tease out” your dirty laundry; be it a lawsuit with a former employee or customer, the loss of a massive contract or a particularly nasty financial results period. Preparing ahead of time and working with your M&A Advisor on the narrative is a must. As an M&A Advisor, there’s nothing worse than a potential buyer who uncovers something that was not previously disclosed. Impressions matter during this process, and you never, ever want to give off the impression you’re trying to hide something.