To get the best value when sell your business, keep your focus on building a great business, serving your clients, growing your revenue and profits and exit will take care of itself.
Many of the CEOs and leadership teams I have worked with over the years have fallen into the same trap: they get overly focused on selling their company to a strategic or financial acquirer or worse, going public. At one level this is understandable since it is a dream for many, if not most, entrepreneurs and leaders to create a lot of personal wealth through a wildly successful exit from their business. That’s why it’s so common to meet business leaders who seem to think of nothing else.
But if you make the notion of selling the primary driver of your business, at the expense of continuing to grow a great enterprise, you’re making a critical mistake.
All too often I hear business leaders tell me that they can’t make that new IT investment or ask an under performing executive to leave the business because they are just treading water until the sale of the business closes. No one wants to spend any money, or rock the boat when it comes to key personnel, because they don’t want to jeopardize their big payday.
Strategic buyers and investors are looking to buy companies who have great executive teams in place that not only deliver results in revenue and profits now, but who also have built in the upside to deliver growth into the future. And a pile of recurring revenue is sure to help!
So when a potential acquirer looks at a business that is clearly doing its best just to keep the status quo and not making the right moves and investments, they will see right through that and wonder if the company is now too risky to invest in. Smart buyers and investors look for companies that are continuing to thrive, grow, and make smart decisions â€“ not those who are just passing the buck.
What do you think would happen if an investor approaches your company and asks which members of the executive team they should hang onto – and which ones they shouldn’t? If you immediately give them the name of a vice president who isn’t performing, you can bet the investor’s first question will be: “Why haven’t you gotten rid of them already then?”
Or, let’s say you have been holding off on making that big investment in a new IT system your team has been begging for. What you will find is that when an investor learns about that, they will discount their offer price for your business by the amount it would take them to make that same investment at the very least.
That’s why the best strategy to get the best price for your business is to continue to focus on building a great company â€“ not on trying to sell it. If you were to make the investment in the IT system now, you might even be able to extract a premium from a potential buyer because you have laid the foundation for future growth because of that investment.
Believe me I speak from experience. A few years ago, I, too, was in the process of selling my company. We had received such a rich offer from a public-traded company we couldn’t say no to. At the time, my CFO and I were the only ones who knew the transaction was in the works. As it happened, my VP of engineering wasn’t performing at the time. I had him on an improvement plan for the prior few months and he just wasn’t getting any better. I knew it was time to make the move and help him leave the company. But rather than worry that I would scare off our potential buyer, I let them know what I was doing and why. I told them I was making a decision that was in the best interests of the business â€“ and that was going to be my focus regardless of what happened with our transaction. The buyer was impressed: they told me they appreciated it. The deal eventually went through, before we even replaced that VP.
If you want to get the best price or value when it comes time to sell your business, keep your focus on building a great business, serving your clients, growing your revenue and profits and the great valuation on the exit will take care of itself.