We have all heard Alan Lakein’s quote “Failing to plan is planning to fail”. However, the problem today is that many middle market entrepreneurs sell their businesses without proper planning for the sale event and thus leave millions on the table.

I am sure that many of these entrepreneurs would say that they did plan to sell, hired an investment banker, and went through a process. However, this is the end part of the process and planning needs to start 3+ years in advance to be truly effective. In the sub $100MM market, to maximize the value of a business is not hoping some banker knows a buyer that will pay substantially more, but rather properly preparing the company for sale.

The lack of planning I believe is due to two issues: (i) entrepreneurs don’t fully realize the benefits of planning, and (ii) they don’t look at their business with external objectivity.

Proper planning will:

  • Allow your tax and wealth advisors to minimize your taxes and maximize wealth transfers;

  • Enable you to implement profit improvement measures and show the effect of those to a potential buyer;

  • Ensure that the company has a strategic plan that it is executing, and that the management team knows it, breathes it and lives it;

  • Ensure that your customer base is diverse, and you have developed recurring revenue lines, if possible;

  • Provide the opportunity to ensure that your contracts will allow for a sale and that they are relatively similar; and

  • Allow you to improve the company’s performance, to ensure it is performing in the top quartile of similar businesses.

All of these steps will increase the value to a buyer and increase the net proceeds to the seller. However, they take time to develop, implement and show results. They cannot be done overnight. This is like running a marathon, you can go out and run one, but if you train and work on it, you will do much better, but that takes time. Thus, the planning needs to start well in advance.

Finally, markets operate in cycles, which may not coincide with your plans. As inconvenient as this is, you have no control over market timing and must deal with the market conditions as they occur. Therefore, if the market window closes before the sale is complete, you can either sell at a lower price or wait 6 – 8 years for market conditions to return. To minimize this risk, always run your business as though you are going sell it “tomorrow.” Doing so will allow you to take advantage of market conditions when they occur and maximize your proceeds.

 

© 2015 Marc Borrelli All Rights Reserved

0 Comments

Submit a Comment

Your email address will not be published.

Recent Posts

5 Ways to Use Email Automation to Boost Traffic

5 Ways to Use Email Automation to Boost Traffic

Every single business in the world wants to evolve and grow. This will happen using a variety of techniques and strategies. In 2022, digital marketing is more than a household name, and most companies will adopt at least a few ideas when long-term planning and coming...

Profit and Revenue are Lousy Core Values

Profit and Revenue are Lousy Core Values

As I mentioned last week, I am down with COVID and tired, so spending more time reading rather than working. I read Bill Browder's Freezing Order this weekend, and I highly recommend it. However, at the end of the book, Browder says that oligarchs, autocrats, and...

Core Values are Critical

Core Values are Critical

I am currently sick with COVID, so, killing time yesterday, I watched Downfall: The Case Against Boeing about Boeing's issues with the 737 Max and how the focus and financial results versus anything else led to the problems with the plane. The company focused on...

Resolutions, Here We Go Again.

Resolutions, Here We Go Again.

2021 Resolutions, A Scorecard Last year I shared how I came up with resolutions to meet my business and personal needs in my blog post, New Year's Resolutions, Once More Unto the Breach. I broke my 2021 resolutions for 2021 into three areas and scored them as follows:...