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Dreaming About Selling Your Company?

Posted By Ron Sidman, Wednesday, November 8, 2017

Many juvenile product company owners hope to be able to cash in on all their hard work someday via a company sale. Having experienced the process myself first hand, I thought I could pass on a few pointers as well as some cautions.

 

Just like most major life decisions, selling your company is a complicated proposition that deserves a great deal of thought and care. No doubt it will be a life-changing experience not just for you but for many other people in your world. You want to be able to look back on the transaction with satisfaction not regret. If you’ve reached the point where you are considering selling, here are some important questions to ask yourself:

 

Are You Selling for the Right Reasons?

There are lots of situations and events that can stir up thoughts about a sale. But you never want to be using a sale as a way to escape a bad situation. The outcome of selling under duress is likely to be disappointing. You can’t hide the bad news. Buyers are too savvy. The best time to do a deal is when you don’t have to but you want to—and your reasons for wanting out should make sense to others. If your rationale doesn’t add up, potential buyers will be very suspicious. Good reasons for putting your company on the market would be things like wanting to try something else in your life or being ready for retirement.

 

Is This the Right Time?

To maximize the value you will receive, you want to sell when your profits are trending up and prospects for new business are provably rosy. Of course, when that’s the case, you’ll be tempted to postpone selling. But that’s precisely the time to press the go button. Buyers will estimate the return on their investment and the corresponding price they are willing to pay based on what is real—what has already happened or is sure to happen, not what you’re promising for the future.

 

You also need to make sure your company has been positioned for sale. What I mean by that is that the staff and processes you have in place can be easily taken over and run by the new owner. If that’s not the case already, it will take time to get there—maybe years. But it’s worth waiting. If the company is too dependent on you or any one person for that matter, the value for a buyer can be drastically diminished. Similarly it’s best for your company not to be too dependent on one customer or one product. Diversify your revenue sources.

 

Can You Keep it Confidential?

While I’m typically a big proponent of transparency when running a company, the fact that you’re contemplating a transaction of this type is one thing that you need to keep confidential for as long as possible for many critical practical reasons. It’s crucial to keep your business running smoothly during a process like this. The last thing you need are employees or customers nervous about the company’s future. When you’ve worked out all the details, that’s the time to come forward.

 

Have You Really Thought Through the Consequences?

Failure to thoroughly think through all the intended and possible unintended consequences of a sale is where the biggest heartaches can come from. The sale of my company did not at all unfold the way I expected. While I wanted to walk away after the deal, our hope was to attract a buyer who would retain our existing staff. That didn’t happen for the most part and once the documents are signed you have no control over what the new owner does.

 

Other questions you should be considering in advance are: What are you going to do with yourself after the sale? Stay on? If so, what would it be like working for someone else? Leave and play golf? Will you be happy doing that for the rest of your life? Start a new company? I was strongly advised by some business friends to make a clean break. That was good advice for me.

 

Do You Have the Right Advisers?

Selling a business is complicated stuff legally and financially and chances are you’ve never done it before. Make sure you have capable experienced legal and deal-making experts working with you every step of the way. Get the best you can find. I can’t emphasize enough how important this is even if it seems expensive. A process like this will have many unexpected surprises and setbacks. You want people by your side who have been through it multiple times and know how to cope with anything and everything.

 

Next Steps

As always, if you’d like more information or assistance from me regarding your unique challenges, consider taking advantage of JPMA’s Executive Mentor Program. Check the JPMA web site for more information or contact Sam Adams at sadams@jpma.org.

Tags:  company sale  sell your company 

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