After running a company for several years, or having just started a company, it is never too early for you to think about selling operations. While creating a unique company that looks attractive to potential buyers could result in a transaction, being truly ready to sell requires looking at the valuation, the economy, and having the mindset to make it happen.
At Synergetic Finance, we are routinely asked by clients to help with sell-side transactions. However, often we advise the company to further build its value, so that a successful transaction can be created. The first step in the process is meeting with the client regarding the company’s likelihood to be sold.
Companies that are well-run with a planned exit in mind usually have a better chance of being sold in a quick time frame and at an attractive price. Having built identifiable value over many years, it is easier to illustrate the lower financial risk to a potential buyer. Getting the house in order to get to this point in the company’s history and the owner’s life requires hitting key milestones to result in a successful sale transaction to a qualified buyer.
As a prepared business owner, you need to consider the following areas in the journey to a sale: valuation, economy and mindset. In this blog post, we’ll look at the valuation, and address economy and mindset in later posts.
The Valuation
When Synergetic Finance is engaged to sell a company, there are a number of scenarios which have likely led to this event. We may have a long relationship with the company built over many years, done prior valuation work for the company, or be retained in a short time to solely complete the M&A transaction. These different perspectives provide us with unique insight into the best way to sell operations. It is always best to sell a company under a situation of stable value, rather than a distressed emergency.
For this reason, we always recommend doing a thorough business valuation of the company first to understand exactly your starting point from a value perspective. It is important to look deeply at the company’s intrinsic value using income methods, market methods, and asset based methods, whatever is most appropriate for the situation.
We may be curious of the market value of the company, but as a starting point, we need to know what it is truly worth independent of a sale. It is always better to build value first, upon which the market recognizes in time. Timing the market may work occasionally, but it is a shaky long-term plan. Once we complete the business valuation, clients often turn to us to consult on helping optimize their value from where they are to where they would like to be. These efforts are strategically planned prior to a successful transaction. Applying the appropriate attention to key areas of the business results in a higher valuation and higher sales price, and this growth of economic benefits and lowering risk may likely take months to complete.
In our next blog post, we’ll address the economy and its impact on the potential sale of your business.
To your success,
Mark Girouard, MBA, AVA, CMA&A
Synergetic Finance