3. Avoid Surprises by Self Due Diligence
Any serious buyer will perform extensive due diligence prior to consummating a transaction. Any surprises at this stage will have the potential to negatively impact a deal. Trust is critical to a successful transaction and the last thing you want to put into the mind of a buyer is doubt.
You can avoid surprises by conducting your own due diligence process with your team of advisors prior to bringing your business to market. Be ruthless — a prospective buyer and their team of advisors will turn over every stone — you should do the same to Identify any and every possible issue that may be perceived as a negative through rigorous self-assessment.
4. Address Customer and Supplier Concentration
Two areas of risk often rise to the top of the list for prospective buyers — customer concentration and vendor concentration. If your business is highly dependent on just a few customers or vendors, it could have a profoundly negative effect on the valuation of your business. This may be unavoidable in certain businesses but there are still ways to mitigate the risk.
Whenever and wherever possible, strive to expand and diversify both your cus¬tomer base and vendor pool. Anything you can do to reduce concentration risk will help increase the value of your business.
5. Lock-in Key Employees
Another area of risk for potential buyers lies in your company’s dependency upon a few key employees. If your operation is overly dependent on one or a few employees, would-be buyers may be reluctant to move forward at all unless you’ve taken steps to mitigate the risk. Whenever pos¬sible, lock-in key employees by obtaining non-compete or non-solicitation agreements well in advance of a transaction. Try to align the financial goals of management with ownership to create a win-win situation.
6. Assemble Your A-Team of Advisors
Chances are you’ve never sold a business before, and you may never do it again. Since this is likely the most important financial decision of your life, this is no time to learn on the fly. Make sure you assemble the right team of experienced advisors to assist you throughout the process. A seasoned team of profession¬als that have “been there, done that” hundreds of times will be your best asset in avoiding any one of a thousand missteps.
The right team of advisors will have dedicated experts in accounting, tax, legal, wealth management and investment banking. Each will play a specific role in the sale process, providing you with the insight, expertise and guidance to make the tough decisions along the way. You’re likely to get just one shot at this, and you’ll want an experienced team that will make sure you get it right.
While all of the advanced preparation can seem overwhelming, the more work and planning that you do in advance of a transaction to package and position your business, the quicker and easier the sales process will be, and the more value you’ll get in return.
ARI FUCHS is a director at DAK, an investment bank specializing in middle-market, privately-held companies. He advises business owners on selling businesses, making acquisitions, financial restructuring, capital advisory and valuations. Email him at afuchs@dakgroup.com.
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