Planning to sell your company?
Long range planning belongs to the job description for the Board of Directors (BOD) and the CEO. This includes succession planning and exit discussions. In all cases one should be planning at least five years ahead. Candidly it takes time to assess a corporate valuation and structure an exit plan.
Most importantly it helps if a company is profitable and generates cash flow in order to be sold; if not, it takes time to navigate your way to profitability. Income must be generated, and expenses need to be controlled. This calls for a significant amount of management discipline.
The BOD, the CEO and the CFO must be focused on growth, and cash flow.
Unfortunately, many companies suffer from lack of fiscal discipline and don’t optimize their operations. This is critical if you want to sell your company.
Who is the likely Buyer
For smaller companies that can avail themselves of SBA financing or the like, they can obtain up to $5,000,000 in SBA financing. If that is not available, many owners carry the financing with a reasonable 30 -40% down payment and a 5 -10-year payoff. The selling company must be earning enough money to generate a profit and pay off the debt in 10 years or less. Larger companies often hire merger and acquisition experts who have a line on financing options.
A sales broker or M and A expert will typically identify Buyers that are from one of the following:
Local Buyers in the same industry
Local supplier in the same industry
A buyer who likes your business model, in the same region
For a national roll up, national companies have M and A staff that will negotiate with you and evaluate if your company is a good fit for their business model.
A Private Equity Buyer
Internal Buyer – trusted employee/s
Some transactions can be made after underwriting without a Broker using only your business attorney and CPA. Since most Buyers are local, don’t burn your bridges as you go to association meetings since you may be talking to future colleagues as buyers or Sellers.
Before you sell your company, you can strategically increase your bottom like by buying some similar smaller companies, allowing you to grow your client base and harvest some operational efficiencies and increase your cash flow.
Culture Clash
As you explore the marketplace try to find a Buyer that has a similar culture as you do. This is to prevent your having to take the company back if the merger fails. A similar culture also allows for a smoother transition, so the employees can find a place that is comfortable and safe.
Some employee turnover after a sale is inevitable, but you can manage the outflow of talent by creating a big tent that is suitable to all. Honesty and good ethics are a large piece of that puzzle. Co-workers need to be happy and need to feel that they have a safe place to work. Leadership needs to embrace all the combined staff. Keeping corporate memory (i.e. existing staff) is critical to a successful transition, and maintenance of existing client base.
Sometimes a purchase is a strategic purchase. The Buyer wants to reduce competition by taking a competitor out of the market and obtaining their customers), where the Buyer may plan to shutter the Seller’s business after closing the deal. Even in those cases you don’t want to burn your bridges. In the future, those employees may be knocking at your door, especially if they have a talent you need. Think long term.
Finding a Business Broker
It’s not easy to find a business broker. Start by asking your attorney and your CPA for references. As well as bankers and wealth advisors. The internet can be a resource and business journals may have some information as well. Most important is finding out if the decision maker can establish a communication chemistry with the listing broker. If the personalities do not match a deal will never be made. The business broker needs to be able to show a track record of success. One deal a year is not a success. They also need to prescreen and underwrite the deal to help advise the Seller. Their marketing skills need to be extraordinary, otherwise a deal will never get done.
Financial records
A key part of successful sales are your positive financials and a strong accurate valuation. Your CFO/Controller is key to this transaction. Their attention to detail will make for a much smoother sale. You may want to hire an outside company to audit your information and your corporate financials, to make sure you don’t have hidden problems in your systems before you put the company on the market. Make sure all your bills are current and that your clients also are current paying your invoices. This takes some significant planning. The annual valuation process needs to be made with well supported numbers. A Buyer will only pay on substantiated and repeatable numbers, unless you have a process, market share, or a product or patent that is worth a significant amount more to them.
Focus on being a best-in-class operator
Focus on having the best and most efficient procedures and policies. Companies that do this are more profitable. Involve all your employees in your goal to build a successful company. Telegraph your growth vision and mission to your team so that all are on the same page. They can help you find operational efficiencies to drive your profitability.
Summary
On average, companies can lose between 5% and 15% of their customer base every year. Operating your company to embrace growth will help you offset attrition and will allow you to create the cash flow you need to show strong financials to a Buyer. Your likely Buyer may be local and someone you know. Help your business broker find the best Buyer. Complete and review annual valuations to track your progress. Be prepared to spend a lot of time with your attorney as negotiations progress. Plan on obtaining more than one offer, create some competition to find the right fit. Be flexible, be motivated and willing to sell, and have a plan of what you will be doing after the company sells.
Other resources:
https://experienceworks.org/how-to-sell-a-business-in-oregon/
https://morganandwestfield.com/offices/portland-oregon-business-brokers/
https://cressetcapital.com/entrepreneurs/
https://www.harborstreetcapital.com/
https://truenorthretirementadvisors.com/should-you-sell-your-business-to-a-key-employee/
https://www.cfoselections.com/perspective/should-i-sell-my-business-now-or-wait
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021.
He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN | Bluestone.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate-related topics. Cliff is the author of two books, 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC., designed to help investors and commercial brokerage owners successfully navigate their businesses. He can be reached at 503-267-1909, Cliffhockley@gmail.com or Cliff.Hockley@SVN.com.
