Key takeaways:
- How to prepare your business for sale.
- Setting the asking price.
- Identifying the right buyer.
- Marketing your business.
- Getting help with the process.
Your business is your baby; it's a reflection of you, your vision and years of dedication. Therefore, when it’s time to sell, you don’t want to hand it over to just anybody. Finding the right buyer is among the most pivotal decisions you'll make. It’s a process that needs a combination of thorough preparation, objective analysis and effective outreach.
When it comes time to sell your business, beyond simply maximizing your financial return (which is certainly important), you also want to ensure your business continues to thrive under its new owner. With thoughtful planning, you can find a buyer whose values resonate with your own and who offers fair terms for your years of dedication.
Preparing your business for sale
Proper preparation is key and should begin well before you want to finalize the sale. A common mistake is trying to put your business on the market before it’s truly ready, which can often result in lengthy negotiations and/or low offers. To get the interest of serious buyers, you'll need to show that your business is both stable and positioned for continued growth.
Are your finances in good order?
Transparent and accurate financial statements are crucial for a successful sale. Buyers usually expect to review three to five years of audited or reviewed figures.
They'll want to scrutinize metrics like EBITDA (earnings before interest, taxes, depreciation and amortization), the consistency of your cash flow and your debt-to-equity ratios. Be clear about any changes, like personal expenses or extra costs, so buyers know how much money your business can make.
Can your business continue without you?
If your business relies too heavily on your day-to-day involvement, selling it can be more difficult. Buyers want operations that can run smoothly, independently of their owner.
Document all processes, standard operating procedures and supply chain logistics. The more independent your business is from you, the more appealing — and less risky — it will be to potential buyers.
Is your market positioning competitive?
Sophisticated buyers will carefully examine your position in the marketplace. You need to be able to communicate what sets your business apart and how it compares to your competitors. Sharing a SWOT (strengths, weaknesses, opportunities and threats) analysis will provide a realistic understanding of your competitive landscape and where growth opportunities exist.
Who are your key employees?
The strength of your management team can be a deciding factor in the sale. Buyers will want details about the experience, tenure and future intentions of your leadership group. Arrangements like bonuses or formal contracts can make a buyer feel more confident that the company's most important people will stay after the sale.
Do you have any valuable intellectual property?
Ensure that all intellectual property — including trademarks, patents, software and copyrights — is documented and properly registered. While strong IP can add significant value to your business, its legal status needs to be secure and uncontested.
Setting your price
Arriving at an appropriate price requires both analytical rigour and awareness of the broader market. An unrealistically high price may deter genuine buyers, while undervaluing your business can mean missing out on hard-earned rewards. There are several resources you can turn to when deciding on your asking price.
You should first lean on your professional network; you can gather insights from peers who have sold similar businesses. These real-world perspectives are valuable but shouldn’t be your sole reference.
Your circle of professional advisors — legal, financial and accounting experts — can help provide formal valuations using methodologies such as discounted cash flow or comparable company analysis. They can also help explain the tax consequences of different deal structures, which can have a significant impact on the amount of money you’ll ultimately receive. Your IG Advisor can provide significant resources for valuing your business (more on that later).
Finally, trade associations can provide industry benchmarks. These organizations typically track recent transactions, allowing you to check your valuation against market standards.
Identifying the right buyer
Not all buyers have the same motivations, so it’s important to understand who you’re engaging with and what drives their decision-making.
Strategic buyers
These could be competitors or related firms that are drawn to synergies and integration opportunities. They may value your customer relationships, footprint or technology, and are often prepared to pay a premium for those assets that bolster their own businesses.
Financial buyers
Private equity firms and other investors focus on ROI. Strong recurring revenue, solid management and growth potential attract this group. Their approach is typically analytical, with close attention to your numbers and future projections.
Individual buyers
Experienced managers or entrepreneurs transitioning into business ownership may offer the most personal approach. While their resources may be more limited, they often have an interest in maintaining the existing culture and brand identity.
Marketing your business
After you know what you want and who you want to sell to, you can make a marketing plan that'll help you reach the right people. Your marketing package should include:
- A high-level summary of your business, highlighting its most attractive features.
- A comprehensive package that provides key details about your company without revealing sensitive information.
- The asking price and details of how you reached that value.
Some of this information will only be provided to prospective buyers after they sign a non-disclosure agreement.
You should also decide on which means to use to get your message out there. This could include digital business marketplaces, direct contact with potential buyers in your industry and professional networks.
You don’t have to do this alone
Your IG Advisor can help you prepare for the sale of your business and provide you with tools for finding the right buyer.
Through your IG Advisor, you can access interVal, an online tool that can provide you with a free estimate of the value of your company. If your business has sales of over $20 million, they can also introduce you to IG Private Company Advisory (PCA). The PCA team has deep experience of helping entrepreneurs sell their business and can draw from a large network of potential buyers.
The PCA team can help with deal sourcing, valuation and strategies for maximizing your company’s value. Talk to your IG Advisor about how they can help you to find the right buyer for your business. If you don’t have an IG Advisor, you can find one here.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Advisor.
Trademarks, including IG Wealth Management and IG Private Wealth Management, are owned by IGM Financial Inc. and licensed to subsidiary corporations.
