It is one of the most frequently asked questions we get from business owners. “When should I start thinking about selling my business?” The short answer is as soon as you start asking that question. It doesn’t mean that you rush to sell. Rather, it means it is time to start assembling your team of advisors (accountants, bankers, lawyers, wealth managers, etc.) and begin researching the process and the steps you can take in the short- to medium-term to maximize value and probability of success.
We have a client here at Shields that we have worked with for over a decade. Like many of you reading this now, he has the folder of solicitations from both strategic buyers and private equity firms. Two years ago he called and said “I am thinking about what to do with my business. Can you come share your thoughts with me and the board of directors on what we can do to improve our value and how the market will receive the business when it is time.”
A few weeks later we led a two hour discussion with the board of directors where we talked about the trends in the industry niche, outlook for M&A activity, competitive positioning of the company in the market, and the types of liquidity options available to the shareholders. The conclusion of the meeting was a discussion matrix we have called the Shields Rx, which is a list of attributes that the company can begin to improve, based on the various liquidity options, to help optimize a future transaction.
Some of the attributes we discussed included:
- Solidifying a specific niche in the market that would be attractive to strategic buyers;
- Protect IP with patents;
- Complete transformative operational improvements that are near-term opportunities;
- Improve internal reporting capabilities to dissect the various “sales by’s”;
- Improve margins through increasing prices and better cost management; and
- Further develop the management team to reduce key-man risk.
I caught up with this client the other day. He continues to refer back to our list as a guide for where to spend time and resources. The shareholders will receive a much better value for the business and have a higher degree of certainty of close by thinking about the sale well in advance of a transaction.