Buyers are knocking at the door: should you let them in?
Consider this scenario (which we commonly hear from business owners): Out of the blue, you receive an email or phone call from the large corporate firm you’ve admired for so long, saying they are interested in acquiring your business. It’s a dream come true. A testament to all your hard work in building a great company. You have a meeting with them, you provide them detailed financial information, and then…crickets, or the dreaded “you have a great business, but…”.
While a business owner should rightfully be proud that they’re acknowledged so positively in the marketplace, you need to be prepared before opening the door. If your house is messy or under construction and you receive unannounced visitors, you’ll likely suggest they don’t come inside or reschedule for another time so that you have a chance to clean up and prepare for visitors. In a business sale, you should do the same.
So, what does it mean to “clean up” before letting a buyer in? Think about it like an open house. Before initiating an open house, you’ll deep clean, rearrange and/or purchase new furniture, fill in holes in the wall, paint – do whatever it takes to make it “picture perfect.” As a business owner, you also need to prepare for the open house. The “deep cleaning” might be things such as ensuring financials records are produceable and understandable (and the trends are explainable), contracts are received and signed, SOPs are updated, employment records are complete, and tax returns are filed (and taxes are paid) – just to name a handful of things. The “rearranging and/or purchasing of furniture” is the positioning and navigation that goes into preparing a business for sale. What’s important to buyers and what do they want to see? Maybe that tattered table shouldn’t be front and center in the living room. It could be time to replace those curtains.
It’s likely you’d want assistance preparing for an open house. Similarly, if you’re speaking with a large corporate firm who does several acquisitions per year and has an army of advisors, it would be challenging (and ill advised) for you (the business owner) to go it alone. The reality is you’ll become distracted, the business will take a hit, you’ll waste a lot of time, and even if you do receive an offer, is it what your business is truly worth (both in headline value and terms)? Plus, if you entertain one buyer at a time, you lose leverage, it may take multiple tries, and you risk missing out on that ideal seller’s window. To maximize value and terms, you need to have several visitors and a bidding war, as value is in the eye of the beholder and offers can vary widely. Don’t sell your house to the first person who shows interest. It often takes 6+ months to clean up and prepare for the open house, but the additional value you’ll realize is worth the wait.
As a business owner, you should be developing a network of advisors early on (M&A investment bankers, lawyers, CPAs, wealth managers, entrepreneurial organizations). They can help you make sure the house stays clean (and navigate the many issues business owners face) so when a buyer comes knocking, you can take their contact information and tell them you will surely invite them when you plan your open house. And most importantly, your eyes stay focused on the business, because without that, buyers won’t be knocking at all.
Note: an additional resource for things business owners should be doing (or not doing), Persient has an informational guide available, 20 Common Mistakes to Avoid When Selling Your Business.
