Tailoring Your Sale Process to Your Priorities

Money is only the most taxable return delivered upon the sale of your business – you’re also going to get a surplus of time, a chance to chart futures for your employees, and the opportunity to cement a legacy.

Some of these proceeds will matter to you and others will not. As the Ancient Greeks would say, the key is to “know thyself” – that is, to know which return(s) you will prioritize as you plan and execute your exit. Below is a quick look at how prioritizing different returns can lead to different exit plans and outcomes.

Maximizing the money

Attaining the highest-possible sale price means catching three separate influences on the price of your business at their peaks: company performance, buyer demand, and market cyclicality. This perfect storm of circumstance is made possible only by years of planning in advance.

As a result, sale processes designed to maximize financial return tend to require more time than those meant to maximize other results. Investment banks will be invaluable throughout this process, but identifying the advisor best suited to your company takes time – typically anywhere from 6-18 months. Upon reviewing your business, where it stands relative to the market overall, and what demand from potential buyers appears to be, your investment banker might go on to recommend years-worth of adjustments.

These adjustments include actions like maneuvering into new industries that offer more generous multiples, seeking acquisitions to build upon your book of business, and/or making operational changes to bolster the bottom-line, among others. These steps ensure that you’re catching the market at its peak while simultaneously attracting the maximum number of buyers. Every skipped step could cost you dollars in the end, so give yourself plenty of time to prepare your company to achieve a high sale price.

Saving time

On the other hand, perhaps circumstances dictate that selling your company as quickly as possible is more important than getting the best price for it. Obviously, under that scenario, there’s less time to conceive an optimal plan. Nevertheless, there are steps you can take to ensure a quick transaction.

When looking to sell quickly, representation remains advantageous, but you may look to hire your intermediary, or intermediaries, under different terms. Since you’ve got little time to prepare your company for sale anyway, seek bankers and brokers that will work for success fees. Additionally, seek non-exclusive agreements – this will allow you to engage multiple intermediaries and expedite the actual sale.

Leading up to and during the sale process, it’s imperative to keep your business on a brisk growth trajectory. Strong financial performance motivates buyers to move quickly because they are not inclined to pay a premium for the profits you are earning – they’d rather earn those on their own, after the sale.

It’s important to remember, however, that seeking a quick deal concedes a great amount of leverage to your buyer. If you can afford to take your time in any regard, it’s advisable to do so – those extra weeks and months make other goals far more attainable.

Charting a future for employees

Choosing when and how to sell your company is a personal choice, but obviously you are not the only one affected by it. It’s likely that you have employees who have spent years helping you build the company to where it is today, and your exit from the business has the potential to change their lives, depending upon how you execute it.

The most straightforward way to maintain the futures of your employees is to set expectations before the sale, and if possible ensure that your company remains intact after you’re gone. Certain types of buyers, like private equity firms or strategic acquirers, may be less likely to maintain your company’s payroll, bringing on their own management teams or rolling up positions into the existing business. Others, like search funds or family offices, rely on current employees remaining with the company for a seamless transition and the continued success of the business.

Perhaps the most effective means by which to ensure your employees’ future at the company is to exit through an employee stock ownership plan (ESOP). ESOPs transfer equity from individual owners to employees over time, while leveraged ESOPs allow the majority owner to capture most of the value of their exit up front. ESOPs may complicate future equity-related decisions at the company, but they are a viable way to exit your business while maintaining its existence.

Cementing your legacy

Not only can maintaining your business ensure a future for your employees, but it can also ensure your professional legacy. Of course, legacies often consist of much more than companies themselves. Selling your company presents a great opportunity to consider the legacy you’d like to leave, if any.

A true legacy will stand the test of time. If your company is to last decades in your absence, strong leadership will play a key role. Therefore, it’s important to factor in the time necessary to groom your successors as you consider your exit plan. Ensure that your business stands independently of you – not only will that promote its long-term vitality, but it can also prove to grow its value.

Many legacies, though, are more complex than just companies. Nobody thinks of Thomas Edison’s legacy as being General Electric, for instance. Rather, he’s “the man who invented electricity.” Especially if your business is built around advanced technology or scientific breakthroughs, it might be worth considering what the potential for your product could be with access to greater resources. If you’d rather be known for your innovations than for your business, consider viewing your buyers more as long-term strategic partners when evaluating them.

Think what to do, when

Consider what exiting your business means to you. Is it your chance to build the fortune you’ve worked for? Is it a relief from the hustle and bustle of professional life? Is it an opportunity to promote or ensure the futures of deserving employees? Is it the moment in which to cement the legacy you’ve spent years building?

While each issue may matter to an extent, it’s likely that one is your true priority. It’s important to tailor your sale process to your priorities, not the other way around.