First a pandemic and subsequent supply chain problems. Then an energy crisis and inflation. Is it too early to sell your business, or are you just too late?
In these turbulent times, it is difficult to choose a good time to sell your business. However, there are steps you can take to address common concerns of (financial) buyers. By doing so, you yourself create the right moment for the sale of your business, and you become less dependent on uncontrollable external factors.
Demonstrate the company's ability to handle risk
Business results rarely move in a predictable line, but companies with adequate (financial) risk management will generally show less volatile results than competitors. In addition, a lower risk profile, through a lower cost of capital, contributes to a higher enterprise value.
It also builds buyer confidence, increasing deal certainty. Risk management thus contributes to increasing the success rate for successfully selling your company.
Create stability in your business
One of the biggest concerns among financial buyers in SMEs is the dependence on the director-major shareholder. It creates doubts about the self-reliance of the company and the ability of the employees to continue to grow the organization independently. Indeed, personal dependencies also pose a continuity risk.
Make sure your company is co-managed by a capable management team, avoid personal dependencies, and make yourself (as a director-major shareholder) expendable.
Make sure you have a strong future story
While the numbers of your business are one of the most important factors in a sales process, having a clear growth strategy is just as important, even as you step down as an owner. This is about communicating the intrinsic value of your business and why your business remains relevant in the future.
Potential buyers should get excited by the growth story and believe in the value elements of the business. Once you have decided to sell, laying out the future prospects of the business is just as important as the rock-solid numbers.
Be flexible in the deal structure
In today's financing climate, it is increasingly difficult for buyers to maintain price levels for the business in a traditional deal structure. This is due to a lack of available debt capital. Buyers will therefore rely more often on financing from the selling party to finance a deal, for example through an earn-out arrangement or a seller's loan.
A seller's lack of flexibility in this area not only signals mistrust, but simply thwarts the buyer's ability to maintain the desired price level.
In conclusion
If you are not yet ready to take the above steps, or need help with this, a "pre-exit" is a good alternative sales strategy. Through a partial sale you can make use of the knowledge and skills of an investor in the field of (financial) risk management.
It also gives you time to properly transfer your business to as well as the opportunity to benefit from the subsequent value creation.
