Value Driver Series – The seller is not ready

Number two of the seven habit’s espoused by Stephen Covey in his epic writing is to “begin with the end in mind.”  Yet, we see so many successful business owners lose sight of this principle.  This behavior becomes magnified when they are finally ready to sell the business.

Those who have successfully built, run and sold businesses realize the importance of having a carefully crafted  “exit strategy.”

This strategy should become the catalyst that drives everything from your capital structure, and daily key performance indicators to your human resources, business development, sales & marketing strategy and succession plan.

The actual transaction to sell your business will be challenging enough.  The decision to sell is the most important step towards the successful closing of that transaction.  With an early start, you’ll have enough time between these two events to adequately prepare and fulfill your exit strategy for maximum value.

The goal of most business owners is to simply “own” the business.  Any thought of “selling out” is antithetical to the mindset of the typical entrepreneur.  Eventually, real life circumstances surface that may include aging owners, loss of interest, lack of expansion capital, changing market conditions, health or marital issues, loss of key customers or death of the founder.  These matters may be further exacerbated when certain family members are not ready or willing to continue the “dream,” or you may find irreconcilable differences between siblings and key managers.  Any of these could result in a forced sale, before your well-crafted exit strategy is in place.

Professional business brokers and investment bankers agree that the buyer is usually much more prepared for the process than the seller.  The typical Private Equity Group buyer will have a swat team of professionals that evaluate, structure and negotiate the purchase price and other critical terms of the deal.  These experts process numerous transactions while the average business owner will only sell once.  Unless the seller has prepared well in advance, the advantage shifts to the buyer.

In my experience, I have worked with many sellers who started and ran a business effectively but never realized the importance of building a plan to sell their business.  The difficulty with selling your business and realizing the exit while you are still young enough to enjoy the proceeds is almost always underestimated.  The search for a buyer can take well over a year.  Market cycles that raise or depress values can last for years.  The buyer may require the owner to stay on for several years after the sale.  Your ultimate exit may not occur for many years after the initial closing.

If you are not prepared to sell today, you should take an honest assessment of precisely where you stand on the following issues.  How many years are you from exit?  What exit alternatives are available to you or can be developed?  What is your best use of time and financial resources today, that will maximize your value at exit?  What will it take to “get there?”  How long will it take to “get there?”  Which employees need to be hired?  How much must sales grow?

In effect, you should “begin with the end in mind.”

Whether you can support these initiatives internally or have to outsource them, your call to action is to begin a plan now to implement them.  They are proven and will pay off handsomely with higher enterprise value for your company.

<strong>About the Author:</strong>

Frank Pazera, CPA, MBA, is Founding Partner with CFO2 (<a href=”http://www.cfo2.biz”>www.cfo2.biz</a>) providing on-demand financial services for growing companies.

<strong>About CFO2</strong>

CFO2, a division of Bean Box Holdings, Inc, provides “on-demand” comprehensive services, including executive level financial expertise to emerging and established organizations in a wide variety of sectors. CFO2 drives value by allowing you to run your business, while we do the math.  We can be found on the web at <strong>www.cfo2.biz</strong>

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