“If you want to make God laugh”, says the old joke, “tell Him your plans.” This quip makes many of us laugh and one reason it does so is that, deep down, most of us know it’s true. Whatever our vision of the future, we know that it is unwise if not downright foolish to assume that things will progress just as we expect.
It should be of no surprise, then, that most people who sell their businesses end up feeling unprepared for the process. Yes, they knew the date they planned to sell well ahead-of-time – they had years to plan. But did they? They ended thinking about how things would turn out but they did not have a well-thought-out plan of how to get there. God laughed and things turned out completely different from what they had expected.
The first step of the planning process is for you to become educated about the process of selling your business. You know how to run your business but when it comes to selling It, most business owners are like “babes in the woods”. It’s not too late to learn.
What would happen of somebody knocked on your door tomorrow and told you that they had been admiring your company from afar and would like to discuss buying it. Would you be ready to talk? Tomorrow? If not, you could take some steps to prepare yourself -and since the knock might come tomorrow, you might want to take those steps today.
WHAT COULD THEY ASK?
“How much money would you like for your company?” What if you said “5 times earnings.” What does that mean? This year’s earnings? Last year’s earnings? Average earnings for the past 3 years? Forecasted earnings? Even these simple questions already have you stumped.
What you need to know is that sellers should never answer these questions. Never! Provide the buyer with almost all the information he needs and ask him to make an intelligent, informed offer. You may be surprised at how high his offer is.
WHAT DO I DO FIRST?
You need to analyze your business like a buyer would. Restate the last three years financial statements as if it were a public company. Assume, for example, that you only paid yourself salary commensurate with the market for a CEO. Take out the family gardener and your brother-in-law, the one that doesn’t actually work at the company but who still takes a salary. If you own the real estate you occupy, what really is market rent? Do you have lists of Sales by Customer for the last three years? How about Sales by Product? And how about Profit by Product?
What does a buyer want to know? Do you have resumes of your top people on file? Have you analyzed your competition? Do you know the size of your market and your industry, and what’s the difference between the two?
THAT’S NOT ALL
And one question is even more important than any of these: Do you speak the language of M&A? Do you know what EBITDA is? (No, it is not Earnings Before I Tricked the Dumb Accountants.) How does a Leveraged Buyout (LBO) really work? What will be on a buyer’s Due Diligence Checklist and when should you begin gathering it? You know what your Income Statement looks like and you think you’ve seen a Balance Sheet but what exactly is a Cash Flow Statement and why is it important?
You may know the answers to some of these questions, but you probably can’t answer them all. Count on the fact that the buyer knows all this stuff …. and much more.
A GOOD SOLUTION
Since that fateful knock on your door could come at any time, it’s never too soon to prepare. Call today. Our first meeting will be a courtesy – an opportunity for us to discuss whether and in what ways RGA could add value to the sale your company. We won’t ask for any long term commitments. You can fire us anytime. We charge a reasonable hourly fee and we’ll never impose fancy investment-banking success fees or anything similar. We’ll keep it simple and give you the best service available.