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Over the last year, 90%+ of the family-owned, founder-led businesses we’ve helped sell or bring on a partner were not proactively pursuing an exit at the time we were introduced. That one call they took from us changed the trajectory of their business and created generational wealth for their family.
As they will all tell you, selling your business isn’t easy, and unfortunately, for every business that sells, there are dozens that, despite wanting to transact, aren’t equipped to go through a sale process.
The challenge of selling a business is compounded by entrepreneurs’ already busy lives. If you want to find the right partner, you must efficiently sort through the noise of all the people reaching. It’s better to be proactive than reactive, and it’s imperative that you’re prepared when the right opportunity comes knocking.
Chapin Newhard and 48North Partners provide five tips to handle calls with perspective buyers:
1. Know your data and anticipate the questions that will be asked of you
Here are details every buyer will want to know:
- General history of your business and the owner
- Size of your business (revenue, net profit, year-over-year growth)
- Your revenue by service
- When applicable, your revenue by end market (residential v. commercial, government work, etc.)
- A generic overview of your customer base, with answers to such questions as: Who are your customers? How do you win new customers? Who holds those relationships? How long have key customers been with you? Is there any customer concentration?
- Your ownership structure and capitalization table detail
- Overview of organizational chart
- How many employees you have, including W2 and 1099
2. Make your data accessible
It’s important to be comfortable with your CRM and accounting systems and understand how to export data into digestible reports. If you delegate accounting to an internal controller, consider asking for monthly P&L snapshots.
3. Know your owner add-backs
Most service businesses are valued on a multiple of their adjusted net profit.
To ensure you get full credit for your profitability, make sure you have a sense of annual “owner expenses,” which may include, but are not limited to: the W2 salary for owner, car/auto expenses, meals and entertainment, travel, personal insurance, etc. If you own your property and lease it back to the business, double check that your rent is consistent with the market rate.
4. Know what’s important to you if/when a deal takes place
Have proactive conversations with your trusted advisors to discuss succession planning.
Here are a few things to consider if a deal is taking place:
- Do you sell out 100% or continue to own a piece of the pie?
- The ongoing day-to-day role you want to maintain with the company, including any responsibilities you would like to take off your plate
- Where you enjoy spending your time
- Where you add the most value
5. Have general market knowledge about what multiples similar businesses have commanded
Don’t be unrealistic. Expecting the impossible or being inflexible is the quickest way to kill a conversation with a perspective buyer.
Lean on your professional network. Speak with business brokers, M&A attorneys, and other business owners about their experience and gauge what multiple similar companies are trading for.
If you would like to schedule a conversation and discuss your options with Chapin Newhard and the 48North Partners team, please email [email protected].