3 Things to Consider Before Selling Your Business
Some very key points from a recent article from Axial.
For business owners, summer often brings extra challenges like slower sales cycles and the musical chairs of employee vacations. However, summer is also a good time to unplug and take stock of where you are in your life and your business. If that process leads you to think about a sale of your business, you’re going to want to get ahead of the game in three key areas:
#1: Deal with the things that scare buyers away
There are a few big red flags that scare buyers away, especially financial buyers who play an increasing role in one’s exit options today. You will want to review your business, acknowledge where you have weaknesses, create a plan to improve what you can, and be ready to explain what you cannot.
Some common red flags include:
- Revenue concentration: try to avoid a situation where more than 20% of your revenue is tied up in the hands of one or two customers.
- Customer churn: High growth is attractive, but not if it comes with a really high churn rate. If your customer lifecycles are short, you’ll want to examine how you are generating leads, how you are converting leads, and ultimately how well you are delivering on your product or service promises.
- Legal risk: Are your intellectual property rights clean? Do you have any outstanding lawsuits that can be closed off? While legal risk doesn’t always scuttle a deal, you might end up needing to accept worse escrow and indemnity terms than you’ll want. If you can’t clean these items up before you start a process, you’ll want to disclose them early on.
- Key person risk: A lot of lower-middle-market businesses run pretty lean, but you’ll want to avoid too much dependence on any one person, especially the CEO. Now might be a good time to prioritize where you should bring in the right lieutenants and start those recruiting cycles
- In addition to those four, you’ll also want to deal with excessive debt (leverage) in the business, employee churn, and high degrees of sales cyclicality.