We are committed to helping business owners achieve their desired exit. And we are committed enough to tell a client, “It is not the right time yet.” When working with an owner who wants to list their business with us, we are willing to recommend waiting. Why wouldn’t it be the right time to sell? There could be several reasons. That’s why we work with our sellers over the long term to identify areas where they can better maximize their business value and achieve their goals.
The First Thing to Do Before Trying to Sell
The first task for every owner is to establish a baseline valuation. The valuation will not only show an owner if the value is where they need or want it yet but also shed light on opportunities for improvement and possible threats to a successful sale.
Getting a valuation is the first look at the business from a financial standpoint, and it allows your M&A advisor to understand the business’s financial operations. The M&A advisor and the business owner need to align as partners. Knowing the value of the business equips us to help create your exit strategy.
In creating your exit strategy, the findings in the business valuation inform what that strategy looks like and when the timing is best. For some, the numbers make sense to go to market now. But, the valuation might shed light on issue(s) that indicate that it’s best to wait. In that case, we work through how to fix those issues, which will also increase the business value over that period.
There are five areas that we most commonly work with clients to resolve before listing.
5 Reasons to Wait Before Selling a Business
1. Client Concentrations
Due to potential revenue loss, uneven client concentrations and disproportionate revenue streams can raise a significant red flag with lending institutions and cause concerns for buying groups as well. Most banks won’t risk financing an acquisition loan for a business with more than 20% of total sales from one customer. The risk is just too high.
The good news is that this issue is fixable with time. See this article if you need help with client concentration or need help recognizing the issue. We outline a complete strategy to help you address the problem and prevent future issues with your customer base.
2. Unresolved Issues
We know it can be tempting to put off resolving tedious issues, but the time to address these items is before listing, not after. Unresolved problems that could potentially scare away buyers include:
- Tax issues/liens
- Unresolved worker’s comp claims
- Outstanding customer warranty claims
- Regulatory OSHA actions
- County notice of non-compliance
- Past due AP
- Unresolved AP collection claim or vendor lien
- AR collection issues
Most businesses have open issues like these at any given time, but with the right strategy and support team, you should be able to resolve these before listing your business. If you think you have a problem in your business or aren’t sure how to address it, review this article to help resolve issues and prevent future problems from arising.
3. Human Capital Concentration
Human capital concentration means key employees control operations, sales, vendors, or business revenue and lack cross-training. When these employees are the only ones with sufficient knowledge to complete certain tasks, their absence causes a rift in operations – which is risky.
Buyers want the security of having multiple team members who can do any particular job, so the business doesn’t depend on what happens with a single employee. That makes diversifying your team a critical step in preparing a business for sale. Review the considerations in this article if you have a human capital concentration issue in your business and need help addressing it.
4. Overvalued Assets & Inventory
Overvalued assets can be a deal-breaker for even the smoothest sale, leading to due diligence issues, repricing the business, canceled offers, and much more. Not correctly tracking inventory can also cause stress and tougher negotiations throughout a deal. So ensure before going to market that you are accurately tracking your inventory and have an inventory management system in place.
If you are preparing to appraise your assets or inventory or think you may have overvalued your assets or inventory, read this article for a plan to correct the issue.
5. Inaccurate or Poor Bookkeeping
Successful financial organization and planning can dramatically increase your purchase price and the likelihood of selling your business. Buyers find added value in accounting procedures that reduce their go-forward risk.
You are not alone if you are unsure what to look for in your bookkeeping. Most owners are not confident about what to do financially to prepare to sell their business! But, you must consider the status and accessibility of your books and financial records if you are thinking of selling your business. Read this article to learn how to identify, prevent, and resolve bookkeeping issues.
No one wants to leave money on the table when selling a business. And having a deal fall apart at the last minute is every business owner’s nightmare. But if you take time from the beginning to maximize opportunities to increase value – and anticipate what could go wrong – you will have time to address and resolve potential issues while increasing the value of your business. Our advisors work with many clients over years. We are here for the long haul to help our clients reach the best possible outcome for themselves, their business, and their family.
Is it time to take the first step and get your baseline business valuation? We’re here to help. Contact us today for a confidential, no-cost valuation.