5 Questions to Answer Before Deciding to Sell Your Company

Selling your company is a pivotal decision with far-reaching consequences. Whether motivated by personal reasons, market conditions, or strategic business considerations, understanding the intricacies of the sale process is crucial. This guide will navigate you through why and when to sell, how to choose the right selling strategy (effective, enhanced, engaged), who should manage the sale, and what to expect throughout the transaction.

Why Sell Your Company?

The decision to sell often stems from multiple factors. It could be the right time to capitalize on your investment, address personal goals like retirement, or because the market conditions favor a sale. Sometimes, selling becomes a strategic move to leverage industry trends, merge with a larger entity for growth, or because of financial necessity. Identifying your core motivation will inform your strategy and timing.

When to Sell Your Company?

Timing is everything. Ideal selling moments include periods of strong financial performance, favorable market trends, and when the business is not overly reliant on its current owner. Selling during a growth phase can attract more interest and better offers. Additionally, broader economic factors, such as low-interest rates or high demand in your industry, should be considered. Lastly, the owner/s should be psychologically ready.

How Do You Sell Your Company?

How you go about the process of selling your company can significantly influence your company’s valuation, smoothness of the sale process, and probability of closing successfully.

The approach many owners take can be categorized into three levels:

  • Effective Level (DIY): Best for owners approached by buyers within their network and less concerned with maximizing value, leveraging personal contacts and having advisors like lawyers or accountants help them complete the sale.
  • Enhanced Level (Business Broker): Ideal for smaller companies needing some structured support. This method involves hiring industry-specific brokers or generalist M&A advisors to help manage the sale.
  • Engaged Level (M&A Advisor/Investment Banker): For businesses aiming to maximize value through a tailored, professional sale process, engaging with industry specialized M&A advisors or investment bankers to deliver your specific goals and objectives.
Who Should Sell Your Company?

When choosing an advisor, selecting the right one is critical. The choice between a business broker and an M&A advisor often hinges on the size and complexity of your business, as well as your specific goals. Look for professionals with a strong track record in your industry, as they can bring invaluable expertise and an extensive network of potential buyers. Ensure they understand your objectives, from the sale price to the speed of the transaction and any legacy considerations.

What to Expect in a Transaction Process?

The sale process will typically take anywhere from six months to a year—or longer. Expect stages such as:

  1. Preparation: Includes valuing the business, quality of earnings, enhancing its attractiveness, and preparing an information memorandum.
  2. Marketing: Your advisor will market your company to potential buyers, maintaining confidentiality while seeking out the best prospects.
  3. Negotiation and Offers: This phase involves evaluating offers, negotiating terms, and progressing with the most suitable buyer.
  4. Due Diligence: The buyer conducts a thorough review of your business, examining financials, operations, and legal matters.
  5. Closing: Final negotiations, contract signings, and the transfer of ownership occur here, concluding with the receipt of sale proceeds.
Conclusion

Selling your company is a multifaceted decision that requires careful planning and consideration. By understanding the reasons behind your decision, optimizing the timing, choosing the appropriate sale strategy, selecting the right advisor, and knowing what to expect, you can navigate the sale process more effectively and achieve a successful outcome.