In the course of our consulting work within the middle market, we often find that most, if not all, business owners fail to have a plan that includes an exit from their business. It’s not that they fail to see it in the horizon or hope that it will eventually occur, but for the reason that they don’t know where to start, most owners fail to properly prepare for the eventuality of their company’s sale.
Let’s take a recent example from a successful business owner in his late 60’s. Eric had started his business more than 30 years prior and had successfully built a business that provided the lifestyle for which most people dream about. When it came time to engage us as his M&A advisors, there were a few issues that set the deal back by several months. Here are a few areas where our initial client-advisor due diligence alerted us to issues:
Eric was actually lucky. In some cases, the delays of lack of “business sell-ability preparation” could set the business back by more than just months. It could take a year or more to get the business to the point where it is ready to sell. And, in an era when broad-based market fluctuations could quickly remove the ideal window for M&A timing, getting the business prepared for sale long before the need arises is an absolute necessity.
Understanding the risks and challenges of the business seller, doing a mock due diligence prior to beginning the process, properly documenting all systems and procedures and ensuring employees can carry the weight of such a transition are all crucial sticking points to preparing a business for eventual sale. We’ll certainly revisit specifics later, but it is sufficient to note that true built-to-sell companies are typically turn-key in terms of transfer-ability. So, even if you’re planning on using unique financing options for your M&A, fundamentals must not be ignored in the longer and more essential sale preparation phase of the business.