When considering a sale of your business, readiness and pre-transaction planning play a pivotal role in determining the success of a transaction. Ask any business owner who’s gone through the process—they’ll likely tell you they wish they’d been better prepared. Whether you’re looking to sell now or in the next five years, proactive planning is essential for maximizing value and ensuring a smooth closing. This article will discuss six critical questions every business owner should consider when preparing for a potential sale.
1. Do you understand your business’s valuation and the M&A landscape?
Before embarking on the journey of selling your business, it’s crucial to have a clear understanding of the current valuation range, trends, dynamics, and key value drivers shaping M&A in your industry. Understanding factors that influence valuations and buyer interest enables owners to focus on high-value operational improvements prior to a transaction. We encourage owners to meet with an investment banker – maybe more than one – to get smart on valuation and the M&A landscape while assessing who understands your company and industry.
2. How ready is your company for a sale?
Evaluating your company’s operational readiness is the first step toward a successful transaction. For example, a comprehensive SWOT analysis can help owners identify and mitigate common transaction risks before talking to buyers. If you have a longer runway for planning, consider bringing in a business coach (for example, to implement EOS) to develop your leadership team and reduce owner dependency to facilitate a smooth transition. By establishing a strategic plan for your business, you can increase your business’s appeal to buyers, allowing them to focus on its strengths and growth potential.
3. Are your financials ready for third-party due diligence?
Accurate financial statements and key metrics are crucial for building trust and strengthening your negotiating position. Buyers will want forward-looking financial data, so work with your CFO—or bring in a fractional CFO—to put together a defensible forecast leveraging the growth opportunities identified. Most business owners detest budgets and forecasting. We get it, but the buyer needs to see it – so working with your investment banker and CFO on a framework is the first step.
To maximize valuation, leading companies often hire a reputable CPA firm to review internal controls and compile historical financials in a Quality of Earnings (QoE) Report prior to starting an M&A process. The upfront investment can save valuable time during closing and eliminate surprises that can lead to changes in LOI deal terms.
4. Are you ready for third-party legal due diligence?
Anticipating the due diligence process and assembling a comprehensive virtual data room (VDR) is essential for a successful transaction. Review your legal and compliance documents prior to a sale to ensure they are up-to-date and in order, mitigating potential obstacles during closing diligence. Address any outstanding legal or regulatory issues, update contracts and agreements as needed, and work with legal counsel to ensure compliance with relevant laws and regulations. Well-documented compliance frameworks can instill confidence in buyers and minimize transaction risks. Work with your investment bankers to upload important legal and compliance documents to the VDR as you prepare. Your bankers will review these documents and identify any issues to iron out before starting the M&A process.
5. Is your leadership team ready for a transaction?
Developing a comprehensive key employee retention and bonus strategy is essential for maintaining continuity and driving value post-transaction. Consider which members of your leadership team should be introduced to potential buyers and involved in the preparation process. Work closely with your investment banker and legal counsel to determine who should have knowledge of the process and draft retention agreements for employees who will take on key roles post-transaction. Doing this in advance gives buyers confidence in the future stability of your leadership team. By prioritizing employee retention, you can protect your business’s value and help facilitate a smooth transition.
6. Are you emotionally prepared?
Recognizing and managing the emotional ups and downs of selling a business is crucial for owners entering an M&A process. Seek support from your trusted advisors—likely your banker, lawyer, or wealth advisor—to help you stay focused on your long-term goals throughout the process. Make sure you’re committed to the process and ready to invest the necessary time and effort. Finally, take time to consider how you want to spend your time and money once the sale is complete. Hiring the right wealth advisor to facilitate long-term financial goals can ease the stress of going through a liquidity event. Emotional preparedness enables you to approach the sale process with clarity and confidence—make sure you’re ready.
Conclusion
Selling your business is often a once-in-a-lifetime decision. Most owners only get one shot. We recommend engaging with an investment banker who understands your industry through a formal Pre-Transaction Services process that will focus on answers to these key questions. By understanding the M&A landscape, assessing your company’s readiness, and preparing strategically across financial, operational, legal, and leadership areas, you can effectively position your business to maximize value. Then you will be ready – really ready.
