Business advisor Chris Andersen guest blogs about looking towards your business future.
Every month I speak privately with business owners and business groups about obtaining growth capital or planning for the sale of their business. I will share insights about 1) when to plan for a sale, 2) the qualities of businesses with high valuations, and 3) what you can do to increase your valuation.
First, a little context. I have been the founder or part of the management team for five entrepreneurial companies. I went through M&A transactions and it wasn’t until the last one that I experienced what it meant to have a successful exit. That is why I launched Atlas Capital Strategies in 2002.
As mentioned above, when to plan for the sale of a business comes up often. Truthfully you should be working on your exit every day.
“You never know when one of the following will occur: burnout, approached by a buyer, start another venture, reached limit of your resources, decide to retire or the much dreaded Triple-D: death, divorce or disability. Even if you are in love with your business today, there will be a time when one of these will rear its head.”
To prepare for the right exit there are key factors to consider:
1.What do you need: This goal helps you understand how much money is required, on an after-tax basis, for it to be worth it to sell your company.
2.What do you want: There are three highly emotional issues that determine the legacy you create as a result of the sale.
Your role: You may desire to remain with the business as CEO to “take the business to the next level”; become Chairman so you can still be involved in the industry; limit your operating role to one facet of the business; or, like many; you want to exit completely.
What happens to your employees: Do you want to protect each and every employee with zero layoffs; will there be some selective reductions to improve the efficiency; or, are you okay with wholesale reductions to take advantage of synergies when merging with a larger entity.
What happens to your company: The two outcomes here are whether the business remains an independent operating entity (or subsidiary) or the people, products/services, and other assets are simply absorbed by the acquirer.
Entrepreneurs should carefully deliberate the pros and cons of each of these various considerations. This if often the most difficult part in the sale process as it forces you to be truly honest with yourself, to have discussions with your family and friends as well as consider the impact on partners and employees.
Once you know what type of exit you want, be sure you and your business are always prepared for a sale. You will be able to get through the process more easily. Plus, if you have worked on the right things in your business you can command a higher valuation. Next time we will look at the qualities of businesses that drive valuations.
Should you have questions or want to dig in further, feel free to contact me at [email protected] or 415-648-5517.
Chris Andersen is a volunteer advisor for SFMade’s Manufacturer’s Accelerator Program.