Steps to follow to sell a business
The sale of a company is not like the sale of a property (a house, premises, warehouse, etc.) since what is being offered is an organisation capable of generating profits in the form of money for its owners and, therefore, there are radically different aspects to real estate.
The sale of a company is a structured process that must begin with an analysis and valuation of the business in order to know and document what is being offered to the potential interested party. This analysis and valuation require projecting the reasonable possibilities of the company based on recent results (two or three last financial years), the development strategy, the client portfolio and the opportunities offered by the market to which its products and services are aimed based on its organisational and production structure, as well as its competitive advantages.
There is no doubt that the seller will always have his own perception of value and economic ambitions to maximise the price, but the buyer will have that to. Whenever a balance of perceptions and prices is achieved, the chances to succeed increase considerably.
As in any business, the existing supply and demand will influence the price references for the value of the company, as well as the financial liquidity among potential buyers, which will undoubtedly affect the transaction.
In any case, the sale of a company requires preparation and documentation that generates interest and accredits the reality and expectations of profit for the range of potential buyers. For this reason, the assistance of specialised professionals is a key and essential element for the sale to materialise.
There is no doubt that once the preliminary analysis, valuation and documentation have been completed, it will be necessary to plan the commercial and marketing actions to locate interested parties, always maintaining confidentiality to avoid internal conflicts and to prevent the progress of the business from being affected in a sensitive way.
The sale of a company is a process that must be approached by a team, the sellers or owners, the key professionals of the company and the specialised advisors who will direct and coordinate the field work, the dialogue with the interested parties and the closing of the transaction.
The marketing phase involves identifying potential stakeholders, prioritising them, setting a timetable and identifying the best “angle”, who will make the contacts, how to make the contacts and what messages to send.
Once potential stakeholders have been identified and contacted, a sequence of reports and documentation should be prepared and provided as stages are completed.
All steps require the formalisation of contractual commitments with a certain scope depending on the stage of the process, ranging from a letter of intent to a confidentiality agreement or a firm commitment to purchase subject to verifications by the buyer. It is therefore essential that specialised professionals with commercial and negotiating skills are involved.
What should not be done
We identified several issues:
- Initiating the process of selling a business that is not sufficiently known.
- Not being clear about the objectives of the sale and the selection criteria.
- Dismissing candidates a priori.
- Opening an excessively wide range (little control, limited confidentiality and delay in the process).
- Not carrying out a prior survey (in unclear processes).
- Trying to sell “at all costs”.
- Confusing the buyer.
- Considering price as the only variable.
- Not having an experienced financial advisor!
To sum up, not taking advantage of the benefits of a competitive sales process.
The identification of buyers is a key phase of a competitive sales process to which it is necessary to dedicate time and attention, getting to know the business being sold in depth, acquiring “intelligence” of the market and its players, considering, without prejudice, different investors and alternatives. Even so, big surprises always arise.
Sellers/owners often think they are the best people to sell their company. This is a big mistake. You are your own worst representative.
You must rely on specialised professionals if you do not want to fail and nor damage the company’s performance.