Selling a Company: Business Exit Strategy

Selling a Company: Business Exit Strategy

by Kory Boyer, MBA

For years or decades, you have been running this business. It’s a 24/7 job. Now, as you contemplate a sale, these questions should be top of mind.

  • What are my goals–both for my company and for myself–in this transaction? And, more importantly, what will get me to say β€œyes” to an offer?
  • How do I help my company put its best foot forward in the marketplace? This can take several months and involves gathering all your documents and materials, finalizing initiatives, and ensuring the financial repeatability of your numbers.
  • How do I preserve the value of this business and support a successful integration and transition for the new owner?
  • Who should I rely on for guidance in this process?

Even if you are several years away from exiting, it makes sense to engage with experts who specialize in business sales and leadership transitionsβ€”a mergers and acquisition (M&A) advisory team. The initial conversation with a strategy and M&A advisor for a potential future transaction should be free and it will help you understand all that is involved. 

Selling a business can be a full time job in and of itself. It is a huge distraction and the intricacies involved (even for something as seemingly straightforward as passing the torch to a preselected successor) will take up considerable time and energy. You have to ask, is your time better spent keeping the company on the right track or focused on the upcoming transaction?

Resource: Guide to Selling a Business 

Each exit strategy will look unique, but the majority fit into one of these three categories:

  • Handing off to a preselected successor
  • Selling a business outright (riding off into the sunset)
  • Selling part of a business while either retaining some equity or staying on for a period of time

Preselected Successor 

Knowing who will be taking over your business is a great benefit. However, the process still needs to be handled wisely. It is best to give it plenty of time, 18-24 months is not uncommon if you can make it work. During this time you need to establish clear roles and responsibilities. Creating a transition plan that includes a timeline for how the handoff will happen is essential.

It is important to avoid backseat driving as the new executive begins to find their way. An incoming leader who is continually being overruled does not instill confidence among employees. You should focus on helping them maintain the relationships you have built with staff, customers, suppliers, and outside institutions like banks, lawyers, and insurers.

Selling Outright

If your plan is to sell the business and walk away fully, these are some best practices to follow:

  • Focus on finishing up projects that will have a lasting impact. 
  • Do not start a bunch of new initiatives that you will not be there to see to the end.
  • Prioritize initiatives that will quickly increase value and identify things that could be done in the future to use as part of your β€œselling story” to prospective buyers. 

It is critical that you think like a buyer as you evaluate your company to maximize value and decide on the story you tell. Buyers will want to see several months of consistent success rather than one large revenue windfall that may not be repeatable once they own the business. The same goes for cost savings efforts. You will want several months (if not more) of financial records to back up any claims you make about why your company is worth a premium.

All of this goes back to how you prepare to take your company out into the marketplace. Getting support from a financial advisor who specializes in preparation for the due diligence phase of a sale can save you a lot of headaches down the road…and lots of time to focus on the business.

Keeping Skin in the Game

A pathway that more and more business owners are taking (and many private equity firms like to use) is keeping a former owner involved in the business in a limited capacity. This can include rolling equity over and/or agreeing to stay on for a set period of time. 

In this approach, it is important to know the motivations of your buyers and be sure that your visions for the future of the company align. If they are financial buyers their goal may be to resell your company in the near future and that may not match what you want. If they are a strategic buyer you may want to speak to the owners of previous companies they have acquired to get a sense of whether you will be able to work well alongside them.

Your motivations will influence how you position the company in the market as well. If you think you will want to stay on in some capacity then you might be more flexible on rolling equity or potential earn-outs. It’s smart to know and position what your new role will be, but still be flexible enough to consider proposals that may not keep you as the primary decision maker.

What Gets You to Yes

You may already have a list of deal-breakers in your mind. But have you thought enough about what the terms are that will get you to agree to a transaction? This is just as important. Here is where an M&A advisor can help you in forming your deal strategy.

Whichever kind of exit you are aiming for, it is important to plan early, be thorough in your due diligence leading up to it, and maintain the value of your company throughout the process.

checklist to help you prepare for a sale

Kory Boyer, MBA

Kory Boyer, MBA

Kory Boyer is a director in the M&A advisory practice area. He partners with companies in numerous industries to assist in areas including inorganic and organic growth strategies, along with the full spectrum of mergers and acquisitions from target identification, due diligence, transaction management, and integration. Kory also helps clients evaluate operations and processes, to help drive improvements through performance improvement and optimization strategies. He completed his undergraduate studies in Mechanical Engineering at the United States Military Academy and earned his M.B.A. in Finance at Gies College of Business at the University of Illinois at Urbana-Champaign. Kory joined Redpath and Company in 2021.