For New Sellers: Expert Advice from a Buyer – Why You Should Prepare Your Business for Sale
Oct 4, 2023
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Scott Hile, a strategic buyer with experience in almost 100 transactions, shares his advice on preparing a business for sale. He discusses the importance of being prepared, the impact on the value and time it takes to sell, and how being prepared builds trust with a buyer.
Preparing your business for sale is crucial for maximizing its value and minimizing potential risks.
Mitigating risks enhances buyer confidence and justifies a higher purchase price.
Investing time and resources into preparing a business for sale can provide a significant return on investment.
Deep dives
The Importance of Preparing Your Business for Sale
Preparing your business for sale is crucial for maximizing its value and minimizing potential risks. Many sellers are unprepared, leading to missed opportunities and deal complications. Buyers prioritize low-risk investments, so mitigating risks through thorough preparation can increase the purchase price. Sellers should address legal, financial, and operational issues and be transparent about potential risks. Hiring a sell-side advisor can provide valuable guidance and help identify areas for improvement. Adequate preparation takes time, typically around 12 months, to ensure that all aspects of the business are well-organized and ready for due diligence.
The Impact of Risk Perception on Purchase Price
Mitigating risks enhances buyer confidence and justifies a higher purchase price. Buyers often perceive higher risk when sellers lack comprehensive and organized financial records, customer contracts, management depth, successor plans, or audited financial statements. By addressing these issues proactively, sellers can increase the perceived value of their businesses. Buyers prefer lower-risk deals and are more likely to negotiate a higher purchase price if they have confidence in the business's stability and potential. Transparently addressing potential challenges and providing supporting data can significantly affect the purchase price of the business.
The ROI of Business Preparation
Investing time and resources into preparing a business for sale can provide a significant return on investment. Proper preparation can mitigate risks and minimize potential deal complications, saving sellers from headaches and stressful situations during the process. Buyers are more likely to pay a higher purchase price for a well-prepared business with clean financials, organized operations, and minimal risks. Spending approximately 12 months preparing the business allows sellers to identify and address potential issues, present a compelling story to buyers, and maximize the value of their business.
Efficient buyers can complete challenging diligence in 90 days
Efficient buyers who have experience can complete one of the most challenging diligence situations in 90 days, assuming they have access to all the information they need in a timely manner. On average, assuming the same conditions, a standard diligence process can be completed in 60 days. However, it is important to note that the timeframe may vary depending on the terms of the acquisition, such as multiple sites or jurisdictions involved.
Speed is important in the buying process
Speed is crucial in the buying process as it allows buyers to uncover potential issues and thoroughly examine the business before closing the deal. Rushing into a deal without proper diligence can lead to missed landmines that may impact the value of the company post-closing. Speed also benefits the seller, as it allows them to avoid potential issues being uncovered and negotiate a price reduction. However, it is important for both parties to maintain open and transparent communication throughout the process to build trust and effectively address any concerns.
Don’t be scared to put your business on the market – just be prepared. This is the top piece of advice from strategic buyer Scott Hile. He shares his advice learned from doing almost 100 transactions on the buy-side. Scott has seen what can go wrong with a deal and the common mistakes sellers make. He discusses the importance of being prepared, how this can help with running a business even before going to market, the impact on the value and time it takes to sell, and how being prepared builds trust with a buyer.
