What are the most important things sellers should consider when readying to sell their businesses?
It’s very important to have financials generated from a third-party CPA. Sellers must ready themselves in advance by having their books in order. Clearing up any uncertainties with the financials is also extremely important. It is pivotal to provide an accurate account of the business which is supported by key data. Once we have that strong story and information in place, we can craft a thesis that discloses and promotes all aspects of the business.
How do sellers react to our suggestions?
They typically listen. At Chapman Associates, business valuations and managing the deal process is our area of expertise and our clients rely on us to steer them forward. This includes driving valuation, managing expectations throughout a process, and informing our clients when things are going right or deviating off track.
With respect to valuation, our conversations are very candid even before someone becomes a client. This business has been their livelihood and of course they want to maximize value but if a seller isn’t realistic about what their company is worth or what needs to happen to get it ready for sale it won’t serve either party to take on the engagement. Given our deal flow, we have transactional comparatives which give us a good idea of where a company should trade because we have worked with similar companies and we can show the client the experience we have had.
We try to educate our clients on what the market is telling us. And most of the time the education process is pivotal for them. We all must be realistic.
Other than having clean financials, what are some other key things that we look for in a potential client?
In certain sectors, long-term contracts or contracts with specific types of clients have immense value. Additionally, we look for a great story! We also look for something unique about a business which may be the geography they serve, the products and services they offer or the clients they serve. Any businesses with strong contracts that has a history of growth and is scalable are particularly coveted regardless of geography. These companies can expect to have a multitude of buyers bidding on any given deal.
Anything else that’s important for sellers to be thinking about?
It’s all about being able to clearly present a company and the value it has that makes it great.. A company may be valuable but without the right representation it may not get the price it rightly deserves.
Sellers must have a compelling story and business that can bring value to the acquirer. The seller must be enthusiastic about the transaction. Buyers are generally more responsive to enthusiastic sellers and those that know their business inside and out.
Small and medium businesses represent nearly 50% of the total United States economy. Since 1954, we have been privileged to work with thousands of lower middle market buyers, capital providers, and business owners, and hear about their inspirational stories of growth and entrepreneurship.
