Business owners face a dilemma when they’re thinking about selling. Can you guarantee that a potential buyer will value your business properly so that selling is worth it?
The answer hinges on how you present your business and its prospects. Here’s how to prepare your company for sale, find the right buyer, and ensure that you get the right price.
Table of Contents
- What Do I Need to Prepare to Sell My Business?
- How an M&A Advisory Firm Can Help You Value Your Business
- M&A Advisor vs. Business Broker: How to Choose and What to Expect
- Getting a Business Sale-Ready: Step-by-Step Guide
- Getting the Right Business Valuation: Final Thoughts
What Do I Need to Prepare to Sell My Business?
Potential buyers will look for the following metrics when determining your business value:
A plan for future growth. Your buyer will want to know who your customers are, how to reach them, and what your best avenues for expansion are.
Transparency. Buyers look for businesses that offer low risks and high reward potential. They’ll want to know your financial statements inside-out before they make an offer for your company.
Clear financial goals. You’ll need to demonstrate how cash flow will be managed and offer an accurate projection of where the business will be in 5 or 10 years.
Organized, well-presented paperwork. You’ll need to present everything from your income statement to your tax returns up-front and in an organized system. This will persuade potential buyers that your business’s worth is what you say it is.
A straightforward sales process. Whether an interested party is a private equity banker or a larger conglomerate, they’ll want minimal fuss. Having everything ready to go makes the sale process much more palatable and means you’re likely to get a better purchase price.
Building this data and getting ready to present it is much easier when you have an expert partner. That’s where your M&A advisor comes in – here’s how it works.
How an M&A Advisory Firm Can Help You Value Your Business
There’s a critical difference between wanting to sell your business and wanting to get the right price for your business. If you’re invested in the latter, you’ll want to choose a leading M&A advisory firm to broker a deal.
The devil’s in the details when it comes to selling your business – and that’s where you’ll find all the money. An experienced M&A investment bank will know:
- Which details help your business command the highest possible price
- How to present these details to buyers
- How to organize your financial statements in a way that makes the best argument for the amount you’re looking for.
How will an M&A Intermediary get your business ready for Market?
Understanding EBIT and Its Variants
EBIT (Earnings Before Interest & Tax) is a simple metric that companies use for valuation. EBIT presents a reasonably accurate picture of a business, and your business might sell for a reasonable price using this metric.
But is it the most accurate tool for valuing your business? What about EBITDA or EBITDAX (EBIT plus Depreciation, Amortization, and Exploration)?
The value and viability of your business can appear radically different to a buyer, depending on which calculation you use. That’s why it’s essential to know which metric is the most relevant and beneficial for your company before you put it on the market.
An investment bank will run the numbers on every variation of EBIT when it prepares businesses for sale. This isn’t just a matter of showing any customers “your best side first” – it helps the M&A team see your business from every angle.
This is essential when negotiating a purchase. You know why your business is more than the sum of its parts, so don’t sell it as parts. A quality M&A advisory company will use every analytical metric to find those details that help leverage a better sale price.
How Does an Investment Bank Perform a Valuation Before the Sale of the Business?
Every business is different when it comes to future profitability. The reason a “simple & straightforward” approach from a business broker might not get you the best valuation is that they’re not considering the interests of the buyer.
When you start working with an M&A advisor, you’ll have to provide information like your tax returns, evidence of cash flow, records of debt, etc. These financial statements don’t add up to a single, non-negotiable result when it comes to the value of your business. Instead, they help the M&A specialist understand where they should make the sale.
Businesses with a high level of debt and great scalability appeal to different buyers than a business that posts consistently strong profits, low debt, and has limited potential for expansion. A leading M&A intermediary knows:
Where to find the most appropriate buyers depending on your company’s structure, and
How to present your business so that it’s most appealing to this audience.
Calculating value is a mixture of art and science. An investment bank has the utmost respect for hard numbers and a nuanced understanding of what they mean for buyers – without this knowledge, your business will never get the sales price it deserves.
Can an M&A Intermediary Make Your Business More Attractive to a Potential Buyer?
When you prepare your business for sale, you’re looking for minimal fuss and the highest possible price. Potential buyers don’t just find your company in passing and throw out a quote – if only finding customers was so easy!
Instead, you find the best buyer by analyzing a massive volume of prospects and making a calculated approach. This is an M&A advisor’s role in a nutshell. Leading M&A advisory firms have great connections within the industry. It’s not just about getting your business ready for purchase; it’s about selling it where you can guarantee it’ll be seen as hot property.
M&A Advisor vs. Business Broker: How to Choose and What to Expect
What’s the difference between an M&A advisor and a business broker? The industry is similar as both are dealmakers. However, there are key advantages to working with an M&A intermediary that you won’t find even with a reputable brokerage.
The difference is somewhat like having a carpenter design and hand-craft furniture for your dining room vs. buying self-assembly furniture online.
M&A Advisors
When working with an M&A advisor:
- Your interests are at the forefront of the operation.
- An ideal buyer is sourced based on their suitability.
- The people working on your case are experts with specialist training and years of experience.
- An M&A investment company profits from successful relationships between its clients. It’s not just about earning commission on a sale but finding the right people to make the deal.
It takes an M&A advisor with years of experience building connections and negotiating successful sales to get you the best price. A broker will get you the best deal that the buyer can afford; M&A advisory companies change the game by seeking out someone who will pay more because your business has greater potential for them.
Getting a Business Sale-Ready: Step-by-Step Guide
What should I know before selling my business? Here’s what all businesses need to know.
1. Find a Top M&A Advisor
Your company sale will be much easier if you’re working with an experienced M&A investment bank. There’s a huge difference between a cookie-cutter business broker and an M&A advisor that understands who your best buyer is and how to sell to them.
DGP Capital has a superb track record as a broker for business sales, having managed over $15bn in successful M&A transactions. Save yourself the headache of vetting a potential buyer – work with a company that will leverage every advantage you have to put together a superior deal.
Working with an M&A specialist will also make the time-consuming process of finding a potential buyer much easier. They’ll help you find reputable buyers in your industry, demonstrate your future profitability, and organize the eventual sale at an asking price that suits you.
2. Make a Continuity Plan
How far in advance should you begin to prepare to sell your business? Months at least, even with the assistance of a top M&A advisory service.
You’ll need a clear succession plan. You’ll need to demonstrate that your company offers high rewards to the new owner without you at the helm.
Identifying key employees and showing how they’ll help smooth the transition is essential. Your team is a valuable asset: proving this will help you command a better sales price.
You can also offer evidence that you’ve researched new customers, competition in your industry, and market opportunities. Show that while it’s a business for sale, there’s a clear path forward.
3. Evaluate Prospective Buyers
The due diligence process goes both ways. You want your company to be left in the right hands after you sell, so do your homework. Check out the company’s white papers and methodology.
Working with an M&A investment bank to broker the deal is a great way to perform adequate scrutiny. Your M&A partner will know how to phrase questions that don’t put interested companies off but will ensure that you’re selling your business to the right person.
4. Prepare Your Financial Statements
Your financial records need to be organized before you start the sale. Whether you’ve used an accrual basis or cash basis for accounting, this all needs to be laid out clearly in your financial statements.
You should inform the other party of your accounting practices. This will help them estimate their profits in the future and can help you command a higher price – prospective owners hate uncertainty.
Your employees’ contracts should be protected and clear to the new owner. You owe your employees a strong future, and any prospective owner should understand that they’ll inherit a good business culture by respecting this.
5. Be Transparent
How do you protect yourself when selling a business? By preparing everything.
While you don’t want to overwhelm companies looking to buy your business, you should have the following documents prepared up-front:
- Intellectual property documentation
- Non-compete agreements
- Debt records
- Details of your existing customer base
- Any other metrics for growth you think are relevant
Show that you’re serious. The new owners will value your business more highly if they sense it’s been run carefully and that they’re inheriting a well-oiled machine.
Getting the Right Business Valuation: Final Thoughts
What’s the best way to persuade prospective owners to pay what your company is worth?
Answer: to present your affairs in a way that builds a continuous argument for your company’s future viability.
A leading M&A advisory service can help you with all of this and more. Choose an expert: it’s the best way to get the valuation you deserve and put your company in the right hands. Contact DGP Capital for their M&A advisory services and get the best deal for your business.
