Here’s What Everyone Needs to Know Before Selling Their Business

For most business owners, there will come a time when they must decide whether they want to sell their company. If the answer is yes, a significant portion of their financial and professional future will suddenly hinge on an undertaking they’ll be doing for the very first time. And let’s be honest, there are few things in life we get right the first time.

Years ago, when our business first started to attract potential suitors, I sought out the advice and experience of several experienced business owners in our industry who had already navigated the process successfully. Not only did I gain a realistic sense of what our company, Acceleration Partners, might be worth in the eyes of a buyer or investor, but I learned how to put myself and my business in the best position for a good outcome.

A few years later, we ended up finding the right partner and making a deal. Since late 2020, I’ve sat on the opposite side of the mergers and acquisitions (M&A) process. I’ve evaluated over 75 businesses as a buyer, as we continue to build out our platform with our partner.

All too often, I’ve run into people who remind me of myself a few years back. These sellers are approaching what could be the most important transaction of their life without the right support team, materials, or expectations, and as a result, they are unlikely to get across the finish line.

With the wisdom of hindsight and now having now been involved in selling two businesses and buying three, here are the six pieces of advice I would give to potential sellers who want to get the best deal they can with the right buyer.

Rely on Experts With Transactional Experience

You would never try climbing Mount Everest without an experienced guide. Similarly, the worst thing a founder can do is try to navigate the M&A marketplace without expert assistance. Specifically, you’ll likely need accountants, lawyers, and a transaction adviser who understands the M&A process, can help prepare you for the sale process, and can manage negotiations with buyers. The most common forms of transaction advisers are investment bankers for larger deals ($50M or more) and M&A brokers or advisers for smaller deals.

While some businesses really are too small to afford a traditional investment banker — for example companies worth less than $50M in valuation — oftentimes the seller is just hoping to save money by doing things themselves. In my experience, the vast majority of businesses taking this DIY approach either didn’t sell at all or sold after an undesirably long timeline for a lower-than-expected price.

Quality bankers, brokers and transaction advisers know how to effectively navigate the M&A process. Aside from the accounting and legalese, an M&A transaction process is frankly a lot like dating. There’s a certain order of operations that helps everyone feel comfortable with the progression of the relationship and the sharing of information. Momentum and competition are really important factors in getting a deal done. You’ll sell faster and get better offers, if buyers know other buyers are interested.

Understand the Buyer’s Mindset

Conversely, buyers might take advantage when your deal process loses momentum. If you tell a potential buyer there is substantial interest in your business and then you don’t have any offers or progress when they check in later, they might sense you are getting fatigued or that interest is not as strong as expected. A good banker or broker avoids this issue by creating a competitive process with specific deadlines and leading negotiations, so you don’t have to negotiate directly with a buyer.

Experts also protect sellers by keeping buyers honest. Many prospective buyers try to quickly move sellers to sign a Letter of Intent (LOI) just to eliminate competition, knowing that they can renegotiate or “retrade” at a more favorable price before closing. Experienced bankers and brokers know this game well and help sellers keep the buying process competitive. They’ll often move forward with multiple parties and multiple bidders up until a deal is closed. Almost everyone I have spoken with got a meaningful premium for their business running an expert-led, competitive process compared to the offers they got before enlisting a banker. It’s just better to lean on people who know the game.

Choose Your Team of Experts Wisely

One last note on experts: don’t assume the lawyers, accountants or advisers in your network today are the ones you need to go through the M&A process. Your family lawyer is probably not the right person to represent you in a sale nor is your solo practitioner accountant uncle. I’ve even had a founder tell me that they did not need an M&A adviser, because their partner worked in investments/finance. This founder spent over a year trying to sell their business in a very strong market, with several failed transactions.

To get the best deal, you need the right team of experts….