An Intelligent Strategy allows you to not only determine the right path for your business, but gives you the objectivity to determine if you are in a position to pursue it. With your Strategy in hand, you just might find that selling is the answer to your long- and/or short-term challenges!
Reason 1: Changing Market or Financial Climate
One day you are meeting or exceeding quotas, the next you notice that product sales are dropping off. What’s going on?
One of the problems may be reduced consumer spending. Soft sales across your segment are bad news whether you want to hold on to your company or sell it.
Businesses that retain or grow their market share demonstrate that they are meeting consumer demand. If you experience persistent erosion of market share, something serious needs to be addressed before you’re crowded out by competitors that have captured the attention and loyalty of your customer base. Would a change in marketing, distribution, product mix, or new merchandising design help you regain business?Or is it time to sell to a company with deeper pockets and wider mass appeal?
Reason 2: A Souring Partnership
A souring partnership can be a death sentence for a company, because businesses are based on trust and relationships. A partner who is not carrying his or her weight – such as a lack of financial support, failure to devote adequate time to the business, or creating ethical or legal problems – erodes confidence. The relationship may be easier to end than to mend/ the decision to sell and move on could be the healthier choice.
Reason 3: Cash Flow Issues
Negative cash flow is a real spoiler. There are many factors that cause the problem, from slow sales to increased overhead, insufficient margins, or unanticipated capital investments or expenses. Some businesses have lines of credit in place that allow them to use cash flow to cover business growth when profits are high, with financing kicking in to provide a cushion during a downturn. But if interest rates no longer make that economically feasible, or your bank doesn’t see you as a good credit risk, lack of cash reserves could create problems that make selling a smart decision.
Reason 4: No Successor Available
If the primary owner/operator of a family-run business begins to look to retire or have health issues, succession planning may depend on whether someone is available to take over the reins. If not, it might be best to sell the business and share the proceeds through a family trust or an inheritance.
Reason 5: Divorce
When a couple owns a business and divorce is looming, the effect on morale and operations can be devastating. This is a good time to re-evaluate your focus on running your business, with an eye on selling it. Is this something you want to do for the rest of your life? If so, it may make sense to move to a new location and reopen under a new name. Or this might be the ideal time to clean the slate for a new career.
What to Do if You Decide to Sell
If you come to the conclusion that selling makes sense, you need to do everything you can to ensure your company maximizes its value and avoid losses before the sale closes. The “short list” of considerations includes:
- Maximize the value of the deal. To do this, you need to determine the metrics that a buyer cares about (i.e. EBITDA, loan-to-debt ratio, inventory turns, etc.), and have a strategy to bring them in line with expectations, improving the multiples and value
- Preparing your business to sell, assuring that all legal paperwork and financial documentation is in order.
- Keeping your business running as profitably as possible.
- Establishing boundaries on matters such as employment agreements, payment terms, non-competes and compensating key people.
- The pros and cons of keeping the transaction secret from staff, competitors and/or customers.
- Deciding whether to hire a specialist, to help assure you don’t get blind-sided by the tactics a buyer may use to leverage a lower price.
- Minimizing tax consequences.
- Liquidating remaining inventory or assets after the sale is complete.
Addressing these issues early on is what creates real value at the end of the process. Without putting an Intelligent Strategy in place at the outset, you may find yourself planning inadequately, and failing to achieve a satisfactory conclusion. It is often the smartest thing you can do to bring in an independent expert before you even make your mind up whether – or not – to sell.