I was asked recently to jot down some bullet points on the process to sell a firm, as if it is that straightforward. What resulted was a series of pointed questions to test the vendor’s resolve and honesty. Have a go for yourself…
Do you really want to sell your firm?
- Why do you want to sell? The answer is critical; you have to be honest with yourself and the buyer.
- What is your price expectation? Have you tested this honestly against the market?
- Are you prepared to put any portion of the proceeds at risk? If not, why not?
- What will you do once you leave the business? Have a clear view, even if you keep it to yourself.
- Are you prepared to stay in the business for a minimum period? If not, expect less for it.
- Have you ever worked for anyone else before? Will you be able to do it now? And don’t just use the capital gain as a justification.
- How critical are you to the business? Have you really effected succession organisationally? Be honest.
- Is the next tier of management credible to a buyer?
- Will you be expected and able to hold the team together for the new owner?
- What is your firm’s point of differentiation and market strength? Can it be stated simply and quickly to get a “got it” moment?
- Do you really have any distinctive IP? What is its benefit to your clients and/or your business?
- What is your revenue and has it been at that level for a reasonable period? If you are sub-scale, do you at least have defensible expertise and clear market positioning?
- What is EBIT as a % of revenue? If it is consistently less than 15% then you are not as good as you think you are. You should have improved it years ago.
- How are revenue and profit trending? Any hiccup weakens your negotiating position. If you are trending down you have left it too late.
- Will you have to normalise the accounts to prove your value? If so, expect a negotiation you probably won’t win.
- What is the composition of your client base? Is it really as blue chip as you believe or claim?
- Do you know what you want from an acquirer – fit, culture, ability to pay, trustworthiness, reputation and quality?
- Have you been approached already? Do not waste time with tyre kickers. Unless the acquirer can demonstrate they know the process and have done it before it could cost you dearly.
- Do you know you will have to give warranties and guarantees when you sell the business – that may hang over you for years? Have you got your firm in order? Don’t expect the buyer to do it.
- Do you realise the sale process could take at least six months and could occupy a great deal of your time? What will be the impact on the firm?
How did you do? The moral is – be ready for a tough process. Those that prepare, time it well and are focused – have a greater chance of success.