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Selling Your Business? Stop Leaving Money on the Table

Submitted by Michelle Young at Toptal

Authored by Jeffrey Mazer, Finance Expert at Toptal

Edited by Lynn Patra

Key Highlights

  • Current market conditions are prime for selling a business. The market is experiencing high multiples due to plentiful dry powder held by private equity firms, record amounts of cash held by strategic corporate buyers, a low interest rate environment, and high prices for publicly-traded equities.
  • The time it takes to sell generally ranges from five to twelve months. The determining factors around timing include the size of your business and the dynamic balance between buyers and sellers in the market.
  • Valuations are more of an art than a science. The best business valuation methods typically involve cash-flow. Still, the three most commonly utilized valuation calculations are the discounted cash flow, market multiples, and asset valuation.
  • The best practices for maximizing shareholder value include the following:
    • Make sure the business can thrive without you. You need a management team or key employees that can continue to drive cash flow, especially if you plan to exit the business or will have limited involvement in day-to-day operations. You should also broaden your customer base so that the business is not at risk if a couple key customers leave post-sale.
    • Learn the dynamics driving acquisitions in your industry. Many business owners spend their time focused on keeping the business running instead of devoting energy to planning for its sale. Stay apprised of the motivations for financial and strategic buyers in your industry, as this can help you negotiate a higher exit value.
    • Hire the right advisors. Don’t do it alone. An experienced M&A advisor can market your company to a larger group of potential buyers than you can access on your own. Early engagement of an independent valuation specialist can provide a market check on valuation and allow you to incorporate value drivers into your pre-sale planning.
    • Examine and adjust operational efficiencies strategically. If necessary, it could be worth adopting efficient operating procedures before the sale. This may involve investments in new equipment or technology or changes in staffing.
    • Factor tax considerations into sale decisions. Decisions around how to sell your business (merger, sale of stock, sale of assets) should consider tax implications carefully. It is also important to anticipate changes in tax law.

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