By Denise Rondini, Vice President of Marx Group Advisors
Selling an aftermarket business can be a complicated and time consuming process. There are some things you can do to make it easier and faster.
There is no magic formula that ensures you’ll be able to quickly sell your aftermarket company. However, here are a few insider tips that can expedite the process and help you get the best deal possible:
1) Make sure you are ready to sell
You’ve poured your blood, sweat and tears into your business. Maybe the business is a family legacy, so the decision to sell is not taken lightly and requires you to do some soul searching, not only about why you want to sell but also about what you will do following the sale of the business and how different your life will be without it.
You would not want to put in the effort required to get your business ready to sell, only to back out at the 11th hour when you realize you are not ready to move on. Take as much time as you need to thoroughly think through the decision. Don’t go to market until you are 100 percent certain that you want to sell.
2) Make your business attractive to buyers
You are the face of your business as well as the driving force behind it. While that may be great for the day-to-day operation of your business, it can be a liability when it comes to selling it.
You stand a better chance of selling your business at a reasonable profit if you have developed bench strength – key managers – for the various functions of your business. Hire and train people that have the skills and knowledge to run the critical functions of the organization without you.
Prospective buyers, especially equity buyers, want assurance that the business will continue to operate profitably even after you leave. It’s a good idea to have management contracts in place with these key employees to tie them to your business. This not only reassures prospective buyers, but also keeps your key employees from jumping ship when they learn you are selling the business, thereby leaving you understaffed at a time when stability is of utmost importance
3) Make sure you value the business properly
Most of the time, a business’s value is based upon its past performance and the expectation of how it will perform in the future. Since you’ve spent a great deal of time and effort building your business, you may not be in the best position to determine its worth on the open market. Your emotional investment will likely interfere with your objectivity.
One reason experts advise owners to begin the process of selling their businesses at least five years before they actually want to sell, is so they can get their financial house in order and build value. A profitable company brings a higher sales price than one that is stagnating or declining.
Don’t rely on simple formulas; they may not realistically reflect values of similar businesses in your geographic area or for the markets that you serve. Businesses similar to yours can be acquired for strategic reasons and, as a result, may sell for more than their financial statements might indicate. Don’t fall into the trap of thinking your business will sell for 10X EBITDA simply because a nearby company sold for that much.
To get a true idea of what your business is worth, consider hiring an outside business valuation firm that has aftermarket experience and knowledge. This way they can help you come up with a valuation that accurately reflects the true worth of your operation.
4) Identify the right buyers
It seems like anytime something is for sale buyers come out of the woodwork. The reality is that not everyone who expresses interest in your business will be a bona fide prospect. You need to weed out the “looky-loos” from those who are qualified and have the financial wherewithal to complete the transaction within terms that meet your criteria.
Do your own research on potential suitors to make sure they have the financial capability to complete the transaction. Do not share any information with a potential buyer until they have signed a Confidentiality Agreement. You can use this as a step to weed out the curious from the truly interested.
5) Have a growth plan in place
No one wants to invest in a business that does not have the potential to grow. Even if you won’t be around to execute it, having a growth plan in place will make your aftermarket business more attractive to a buyer.
Develop a five-year plan that identifies new market opportunities, product line additions, key prospects and a way to generate incremental revenue from existing customers. Show potential buyers the investments you’ve made that poise your business for growth for years to come.