1. Here’s how to decide if selling your business to a financial buyer is the right move
Most entrepreneurs who want to sell their business are faced with a very important question:
Sell to a strategic buyer?
Or sell to a financial buyer?
It’s worth spending the time to do some soul-searching to answer that question.
Because finding your right answer will make all the difference in achieving your goals.
To make things a little easier, let’s break down what each of these categories of buyers look
A financial buyer (private equity) makes sense when you are seeking to diversify your own personal assets but you’re not necessarily ready to hang up your cleats. With a financial buyer, you remain an independent company. With financial buyers, the overwhelming majority would like to see you stay. These buyers brought their checkbooks, but they are really investing in you. Their goal is to back you and work with you to ramp up your growth. They will work very hard to help you succeed, and by extension – so will you!
Strategic buyers are companies that buy other companies to supercharge their growth. Some strategic buyers want you to stay and join their team, while others just want your customers and would prefer to see you go. Aligning your personal goals with buyer needs ahead of time ensures success! Often times finding the right buyer type hinges on your desire to stay on with the business, or leave after the transaction closes.
2. Drive maximum value for your business by changing the conversation with buyers
Any potential buyer of your business is going to have certain questions.
And, after years of doing this, I’ve learned something:
Anticipating them, and being prepared with the answers, will put you in the power position.
So what do they ask about?
If the business is growing, shrinking, or treading water.
They’ll want to see at least three years’ worth of financial statements on the business.
Because they want to understand as much as possible about your business.
Doing this work in advance changes the conversation.
And it moves the power back to you.
Think about it:
Someone comes knocking on your door and expresses interest in your company.
If you hand them a bunch of receipts in shoe boxes and three years’ worth of files from your
They’ll go through it, then come back to you with what they believe is an applicable valuation.
But if you know what to expect and the potential value of your business ahead of time?
It completely shifts the dynamic.
Because you’ve done the work, they don’t have to figure out how to do everything.
And it becomes a business they want to own.
So do yourself—and your potential buyers—a favor.
And be ready to answer their questions with reviewed or audited financial statements and a
sell-side Q of E that has normalized, adjusted and pro forma EBITDA all laid out in a neat and
3. The 5 things every entrepreneur needs to know before they try to sell their business
Over the last few decades, I’ve been fortunate enough to buy over 50 companies.
And that’s taught me something incredibly valuable:
There are five things everyone should know before listing their business for sale.
If you don’t know these things, you might still sell your business—but not for maximum value.
Ready for the list?
First, you need to have an awareness of your financial reporting.
The cleaner your books, the faster the sale process.
You need to understand the term “EBITDA.”
That’s the measure by which all companies are valued by most strategic and financial buyers.
And understanding your own EBITDA helps make you a more knowledgeable seller.
We aren’t done yet:
You also need to understand if your revenue is growing, stagnant, or declining.
And, you need to know if your earnings are growing, stagnant, or declining.
Finally, you need to be able to tell the story about your business with some level of sophistication.
Take it from me:
Get these five things in order.
It will impress buyers and reassure them that your business is a great investment.
And the result of that?
You will be well on your way to selling your business for maximum value.
4. You might be an expert at running your business. But when it comes to selling it, you need these 4 people in your corner.
I know you’re an expert at running your business.
But, I bet you aren’t an expert when it comes to selling it for maximum value.
Don’t worry, though: as long as you have four crucial people in your corner, you’ll be just fine.
First, a tax advisor.
They can help you structure a deal that will be the most beneficial for you.
Second, an accountant.
They are particularly important during the diligence period.
Because the work they do will help the buyer understand your company’s true financial position.
Third, a lawyer.
But not just any lawyer: someone who specializes in selling businesses.
Fourth, an investment banker.
They act like a real estate agent, but for your business, not a house.
They help you prepare your company for sale and create marketing materials.
Just as importantly, they set up meetings with potential buyers.
It doesn’t stop there—the list of what they do goes on and on.
Suffice to say that they, like your tax advisor, accountant, and lawyer, are critical to your success.
So, if you’re planning to sell your business, here’s my suggestion:
Check your ego at the door, and recognize that this is not something that you do every day.
Then, start lining up the people you need in your corner, so you can get this thing done.
5. If you’re exiting your business, getting the right lawyer for the job is critical to your success
There aren’t many entrepreneurs on earth who don’t have a relationship with an attorney.
The reality is everyone has lawyers they’re comfortable doing business with.
But selling a business represents a specialty area of legal practice, and competence matters.
Let me use doctors as an analogy.
You have most likely been seeing a family physician for a number of years.
But what if you face a health challenge?
The person who operates on you or puts together a plan is typically not your family physician.
There is a time and a place for a general practitioner.
And a time and a place for a specialist.
Everyone gets that concept when it comes to medicine.
And the same holds true when selecting counsel to represent you in a sales transaction.
Yes, a generalist may be cheaper by the hour than a specialist.
But the generalist will take longer to get an agreement negotiated.
They may focus on the wrong elements during the transaction.
And their degree of competency will be reflected in the final negotiated agreements.
So do yourself a favor and avoid all the post-closing risks and trailing liabilities:
Find a competent business lawyer whose sole focus is representing buyers and sellers.
6. 3 things you need to know to select the right lawyer for your business sale
If you’re planning to sell your business, hiring the right lawyer is a must.
But how do you find the perfect counsel to guard your interests throughout the sales process?
Well, in my experience, there are three steps to choosing the right firm for the job.
First, do your research.
The top resource I recommend is the Internet Legal Research Group.
Simply search for “top 350 law firms public legal” online.
That will give you their latest rankings of the top 350 law firms in the United States.
Next, choose the right size firm.
The ideal firm will correspond to your company’s size.
For example, if your revenue is between $1 and $9 million, choose a small local or regional firm.
If you’re in the $50 to $250 million range, go with a multiregional or Tier 2 national firm. If you
are larger than $250 million – congratulations! Hire one of the top law firms in the country.
Once you’ve found some prospective firms, take the time to ask some questions:
What is your speciality area of practice?
Have you worked with entrepreneurs who are selling a business?
What is the typical size company and transaction that you represent?
And so on.
Remember, selling companies is a specialty area of practice.
So don’t leave it to chance: take the time to find the right person to represent you.
No matter how small—or big—your company is.
7. No entrepreneur’s exit strategy is complete without an investment banker. Here’s why.
I’ve been buying and selling businesses for decades.
I’ve gotten pretty good at it—and it’s made me a lot of money.
However, even with all my experience, there’s one person I cannot sell a business without:
An investment banker.
Investment bankers are a lot like realtors.
Only instead of houses, they represent buyers and sellers of businesses.
Think about how important realtors are to the real estate industry.
If you’re selling your home, your agent actively works to find the right buyer for you.
They facilitate the flow of paperwork, handle opening escrow, and schedule the inspections.
In other words, they streamline the very complex real estate process.
Investment bankers do essentially the same thing.
They help you prepare your company for sale.
They create marketing materials, like the teaser:
A one-pager they send to buyers interested in your particular size and type of company.
They set up meetings with potential buyers, then help facilitate bids and negotiations.
In short, they help guide you through the entire process.
And they manage a lot of the details to make it easier for you.
Most people wouldn’t dream of selling their home without a realtor—and for good reason.
And if you’re looking to exit your business, a banker is just as vital.
8. What’s better than selling your company once? Selling it multiple times.
When I talk to most business owners about selling their business, they tell me the same thing:
Given the option, they would prefer to receive 100 percent of the proceeds at close.
If you feel the same, I’d like to share what I think is a much savvier approach.
The first thing an entrepreneur does when they sell their company is buy a new house or car.
Or maybe they buy a boat or go on a nice vacation.
But then they have to look for investment opportunities.
Given that, my question is: Why sell your company once when you could sell it multiple times?
My personal record is selling one company five times.
That’s five multimillion-dollar paydays over about a 13-year period.
Rather than aiming for 100 percent of the proceeds at close, here’s the law of rollover I suggest:
When you sell, take 66 cents for every dollar home.
Pay taxes, diversify your assets, and so forth.
But if you’re staying in the company, roll over 34 cents.
If the private equity firm buying your business plans a three-times return on investment:
Then 34 cents times three is $1.02.
You know what that means:
The second bite of the apple is actually larger than the first.
So play your cards right, and you could end up with huge multiple paydays.
And all from one single company.
9. How to select an investment banker who will find a multitude of buyers interested in your business.
I’m pretty sure you’ll agree with me that when it comes to selling a business:
A universe of buyers is always better than one buyer.
Know how you can get access to that universe of buyers?
By hiring a good investment banker.
It’s their job to help create competitive tension.
By finding a multitude of people interested in your business.
This is what they do, all day, every day.
And no matter your size or industry vertical, there is a banker for you.
So how do you pick the perfect one?
First, find a banker that works with companies of comparable size.
Second, turn to your attorney and accountant:
Ask them for potential referrals to investment banks that fit your size and industry.
You could also do an online search for “top investment banks.”
Vault.com and Mergersandinquisitions.com are good sites to search.
Finally, ask your prospective investment bankers some questions:
What’s the typical industry and company size you work with?
What are the key steps in the sales process you normally run?
Can you show me marketing material for recent transactions you’ve successfully completed?
What’s your percent success rate?
By doing your due diligence, you’ll be able to find the perfect banker.
And then, you can sit back and let them bring a universe of buyers to you.
10. Faced with several buyers for your business? Here’s how to choose a winner.
You’ve prepared your business for sale, assembled your team, and navigated the sale process.
Now it’s coming to an end, and you’re faced with the last handful of potential buyers.
How do you decide who you’re going to sell to?
That’s a question every entrepreneur who is selling their business is faced with.
Is it just about price, or are there other factors that should be considered?
I’ll be honest: for most entrepreneurs, price is the leading driver.
And that’s not wrong.
There is no right or wrong here.
But some entrepreneurs care deeply about the employees who helped them build the business.
And, if two buyers are relatively close in price:
They decide against the buyer who will turn the lights off and fire most of the staff.
Even if that buyer is offering a little more money than the one who will keep the lights on.
Look, nobody can make a decision like this for you.
But it will come up.
So, I suggest you think about it before you get into the sale process.
What are you really trying to achieve?
What legacy do you want to leave with the employees and families who have helped you?
Again, there’s no right or wrong.
It’s just an element you need to consider.
Because the more prepared you are, the easier this process will be when it actually happens.