By Mike Anderson of Bridgepoint Merchant Banking
Selling a company is no easy feat. Just like running a business, the selling process also can be full of ups, downs and everything in between. However, working with company owners in the sales process for more than 25 years has given us several key themes that owners should consider before beginning the selling process. Before you take that next step, keep these five considerations in mind:
- Revenue Trends
Is the trend line of your company rising, flat or falling? While you may think that only companies with rising trend lines would sell, there are potential buyers in all three scenarios. However, it is true that companies with positive trend lines are most desirable, and that desirability supports a higher valuation for you as a seller.
Most company owners worry about cashflow, but you also should be prepared to be measured on EBITDA. Simply put, EBITDA is an accounting method for leveling the playing field. Ask your CPA, an investment banker, or a valuation firm to determine your EBITDA number. Most firms are sold on a multiple of EBITDA, so it is important to know what your number is.
- Client Concentration
We once engaged with a seller who was proud that a single client represented 50% of their revenue. Unfortunately for them, that could be a deal killer depending on the industry. If this single, huge customer did not care for the buyer, the entire sale could be lost. To avoid this, it is in your best interest to review your customer base and product offering and ensure that no sector is over-concentrated.
- Partners and Family
It may have seemed like a good idea to go into business with a family member or best buddy from 6th grade, but family and friends sometimes have differing agendas when it’s time to sell. Timing might be different, needs might be different, etc. How do you resolve that? Look for a firm that deals with family coaching and strategic planning. They can help you work through the challenges and find a strategy agreeable to everyone.
- Your Story
Take a second and ask yourself, “What is my story?” Are you selling for health reasons, or are you ready to retire? Is it because demand in your industry is declining or because you truly believe that the timing is right? Think through your story, and make sure it is marketable.
While there are certainly many other factors to consider, use these five as a basis to ensure you are starting out on the right track. Think ahead, ask questions, invest the time, and expect the unexpected. With planning and help from the right professionals, you will be able to sell your company successfully, – as well as reap the benefits that come with it.
About Bridgepoint Merchant Banking: Bridgepoint Merchant Banking is a middle market investment banking firm that serves clients over their corporate life cycles by providing merger and acquisition and corporate finance advisory services. Bridgepoint Merchant Banking is a division of Bridgepoint Holdings, LLC. In order to offer securities-related Investment Banking Services discussed herein, to include M&A and institutional capital raising, certain Managing Principals of Bridgepoint are registered representatives of M&A Securities Group, Inc., an unaffiliated broker-dealer and member FINRA/SIPC.
Foster Group and Bridgepoint Merchant Banking are unaffiliated entities. Foster Group is registered as an investment adviser and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability. All investment strategies have the potential for profit or loss.
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