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CEO Advisor® Newsletter
October 2019
7 Rules When Selling Your Business to a Strategic Buyer
It can be very appealing for a CEO or business owner to sell their business on their own to a strategic buyer, especially when the CEO has been approached by the strategic buyer. There are other options to selling your business such as selling to a Private Equity firm, but we are going to focus on strategic buyers only in this article.  

When a buyer approaches a company directly, the business owner may feel they can avoid some of the work and time involved in preparing to put the business on the market. The CEO may be able to maintain the confidentiality of the sale by dealing with only one buyer. The business owner may also feel he/she can save on the fee to an M&A advisor or intermediary.
 
As with most major issues such as selling a business, there is a real price that a CEO or business owner pays when going down this path solo, including having no competitive bidders resulting in disadvantageous terms that can be extremely costly.  Your business may be your most valuable asset and is a very dynamic, complex thing to sell requiring a lot of knowledge, preparation and experience. If you would not sell your own home, you certainly do not want to go into a 6 to 9 month process to prepare, market and sell your own business.

Here are some critical issues to remember when dealing with a strategic buyer:

1. It takes time to sell a business and it takes even more time to deal with multiple buyers. The original Information Request from the strategic buyer coupled with a Letter of Intent may seem manageable by some CEOs, but the subsequent Due Diligence process will be extremely time consuming and taxing at a time when you need to stay focused on your business and continue to drive sales.

2. Even the prep work of supplying the initial set of information to the prospective buyer and negotiating the Letter of Intent can be overwhelming to a first or second time seller. Hire a professional to sell your business. Don't risk taking time away from it to "do it yourself" and have the sales and profits of your business falter as a result, which could jeopardize the price or completing the sale altogether.

3. Don't get lured into discussions and believe the strategic buyer. More importantly, don't get your advice from the buyer. The buyer is not looking out for your best interests and there are many issues and questions you want to avoid that will tip your hand on price and terms that you don't want to divulge. Remember that they are pros at buying companies and you will be at a distinct disadvantage if this is your first time experiencing this movie play out.

4. Check the buyer's credit and get a confidentiality agreement signed before you deal with strategic buyers. Don't give them any information about your business beyond your marketing materials or other publicly available information until an NDA is signed.

5. Get a team of strong advisors looking out for your interests - an M&A advisor like CEO Advisor, Inc., a seasoned corporate/transaction attorney, and a CPA/tax advisor that regularly handles mergers and acquisitions transactions. This is money well spent and may be one of the best investments you will make. Have your M&A advisor provide comparable sales information in order to be knowledgeable about your approximate business valuation. A strategic buyer that has bought a number of businesses in your industry in the past doesn't mean that they are paying good prices for them or know the full value of your business. You need a professional opinion of what your business should sell for and professionally prepared information about your business to optimize the value and to increase the probability of an attractive offer.

A purchase price based solely on an Earn Out is not a standard way to sell a business. An Earn Out is where the price is based on how the business performs after the purchase based on how well the seller runs the business. Any aspect of the sale price that includes an Earn Out should be well defined and a specific way to track and get paid on the Earn Out portion of the sale, if any, from a financially strong buyer. Cash is king and you want a substantial amount of your purchase price in cash.

6. Don't deal with only one buyer. In this situation, the buyer tends to hold the upper hand, particularly after an offer to buy the business is accepted. If an M&A advisor is handling the sale, buyers understand that there are most likely other buyers that will buy the business if they make unreasonable demands.

7. One of the benefits of selling to a strategic buyer is that the buyer may be willing to pay more for the business than a financial buyer such as a Private Equity firm, because doing so will increase their sales or profits by more than the two businesses do separately. Using an M&A process to sell the business with professionally prepared information in a Data Room and multiple interested buyers from a large list of targeted buyers is the best method to obtain the highest price and get a transaction completed. 

Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

Planning, Forecasting and Goal Setting for 2020
October, November and December should be your planning months to prepare for 2020 and maximize your opportunity for success. Planning, forecasting and goal setting are critical to any company, large or small.
CEO Advisor, Inc. works with CEOs, presidents and business owners of small and mid-size companies on strategy, growth, funding, mergers and acquisitions and the key to a successful year is up-front strategy and planning.

Conversely, if you are not committing the needed time and focus on planning, forecasting and goal setting for the upcoming year, you are leaving a lot of money on the table and risk your business and your livelihood near and long-term.

Planning
Planning for growth or an exit doesn't mean just having a meeting with your staff or updating a brief business plan and going back to your daily routine. Business planning is a critical aspect of your business that enables you to rethink, adjust, plan, research, strategize, prioritize, focus and allocate resources to your largest opportunities, while minimizing wasted time and resources.

Planning For Growth or an Exit
Planning for organic growth, growth by acquisition, growth through funding, or planning an exit strategy and sale of your business takes discipline, expertise, the ability to strategize and mobilize around a focused effort. Execution is the follow-on implementation of your 2020 Plan in a well thought out, concentrated effort. If you are not executing on your Plan, you are wasting time and money, missing opportunities, burning valuable resources and causing irreparable harm to your company, many times on a permanent basis.

Forecasting
Creating a monthly Financial Forecast of Sales, Cost of Goods Sold (COGS or costs directly related to providing your products and services), Gross Profit (Sales minus COGS), Gross Profit Margin (Gross Profit divided by Sales), Expenses (Overhead), Net Profit and Net Profit Margin (Net Profit divided by Sales) is paramount to effectively running your business.
Additionally, a monthly Financial Forecast enables you to compare your actual results to your Forecast, proactively make needed adjustments to your business, eliminate wasted time and resources, increase Gross Margins and maximize your Profits

Without a monthly Forecast, you are flying blind throughout the year with no metrics or financial goals. This, again, will have you leaving a lot of money on the table that will never be recovered. Forecasting is a straight forward process and a key part of planning for the new year that can be one of the biggest drivers of success and profits. Seek help from a seasoned business advisor to ensure success with this process.

Goal Setting
Goal setting should entail all aspects of your business including:
a) Company goals
b) Management goals
c) Growth goals
d) Financial goals
e) Sales goals
f) Sales per Employee goals
g) Gross Profit and Gross Profit Margin goals
h) Net Profit and Net Profit Margin goals
i) Optimizing Financial Ratios
j) Other measureable goals to grow your business to the next level.

Without setting measurable goals, you and your employees may spend the majority of 2020 going day to day in a constant cycle of reactive tasks instead of proactively focusing on and accomplishing your goals, executing on your Plan, and maximizing sales and profits and the value of your business.

When I meet with CEOs of small and mid-size businesses throughout the year, they typically cannot answer the simple question, "What are your goals for this year?" They throw out short answers such as, "Grow the business", or "Sales", but cannot go beyond this and answer the question distinctly with their four to eight primary goals to drive their businesses forward to build profits and substantial value toward an optimal exit in the future.

This is due to a lack of planning, forecasting and goal setting and is a major deterrent to success and profits. CEO Advisor, Inc. provides expertise and experience to quickly and effectively assist you in planning, forecasting and goal setting for 2020. We address your specific needs with hands-on action, expertise and seasoned advice.

Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

Testimonial  


"Thank you Mark! And thank you for all your help over the years. It is truly appreciated and it was a great ride of accomplishment for all of us. Stay in touch!


Echoing Craig's statement of much thanks and appreciation for the many years in the trenches together with us and helping us achieve a successful exit."

CEO and President, Digital Agency Client
(After Their Successful Sale)

CEO/President, Engineering Services/Manufacturing Company


Whether it is growing a business to the next level, turning a distressed company around or preparing a company for an exit, Mark's firm, CEO Advisor, Inc, provides a broad range of services and Mark is there for the CEO every step of the way."

 


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