This is the most often asked and least listened to answers of them all.
Mental Preparation is first – you have used prudence and sound judgment to get to where you are today. This is not the time to be emotional or erratic. Don't start a sales process because your friend sold their company and you heard that they got a great price or because someone directly expressed interest in buying your company up to or including an unsolicited LOI.
This first step is two dimensional. You must decide why (not IF) you want to sell at this time and then commit to it 100%. This is not a halfway in and halfway out proposition. If you are going to do this, you need to champion it with full commitment from day one.
The second step is to engage a very high-quality M&A advisor (not a business broker). See topic 1 for many reasons why you need a strong advisor.
The third step is to development a macroscopic understanding of the entire offering process before commencing any individual tasks or changes. If you read all 50 of these self-educating narratives you will be in an ideal position to proceed effectively.
The fourth step is to understand that you do not change a zebra from stripes to spots. Your company is what it is! Presumably you have built something very impressive and you should be very proud of what you have accomplished.
With that said, are there natural flaws such as:
- Policies – Procedures – Operating Processes are not well documented
- Financials are remedial and do not receive effective oversight or management
- Cash – credit – capital expenditures are lax or aren't structured at all
- Staffing changes have been avoided to avoid conflict or change
- Business is too dependent on the owner(s)
- Sales – Marketing – Business Development have not been committed to
- Costs of Sales and Overhead Expenses are not managed tightly
- Budgets – Forecasts – Business plans do not exist or are not followed
- Culture lacks focus or discipline
- Numerous facets of the company are not optimized
Most business owners get a cold chill when they read a list like this. Their first thought is "I am weak on at least five of these ten. Does that mean I cannot sell my company until I fix all of these things?"
It would take years to "fix" all of these things.
This is where an astute advisor will guide you on what should be done and what can be done quickly. Your advisor will know how to showcase all of your strengths and how to properly share information on your weaknesses.
Exception – if you cannot present the last three full operating years, plus current year to date financial statements that are materially correct then DO NOT commence an offering. That would be like selling a used car with three flat tires. It would be that obvious. This is a must fix before commencement of your offering.
Note – yes, your weaknesses might result in a somewhat lower purchase price but many times they also help get your company sold because your weaknesses become buyer opportunities.
Example 1. Say you have gotten most of your business word of mouth and you have not made a commitment to marketing. Your advisor will explain to buyers that you are operating a baseline business at 8,000,000 and that with a sales and marketing engine it could be elevated to 15,000,000 quickly. See how your weakness becomes an opportunity for your buyer.
Example 2. You have gotten "content" with your current book of business and you have not sought out new customers or an expansion of your product or service offering model. These should be showcased by your advisor as excellent future growth opportunities.
There are three words that are more important to buyers than any others. "Growth and Recurring Revenues". You always want to illuminate what growth and expansion opportunities that the buyer would have beginning day one.
This is a very abbreviated overview of how to ensure that you are properly prepared for an offering. The real analysis of your level of preparation needs to be determined by your advisor.
As a firm we provide our clients with a business profile document to complete as the very first step. It has over 100 questions and we encourage our clients to spend 10 – 20 hours completing their responses.
The detailed information puts the advisor in an informed position to commence the preparation of the offering documents and the offering itself.
Once you are fully aligned with your advisor, you will feel a new level of competence and confidence.