Be Proactive to Maximize Value

Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.   — Sun Tzu

Selling a company is a monumental job – one that most business owners expect (and hope) to do only once in their lives.  After all, the company is generally the most significant asset for owners of small to mid-sized businesses, and with so much riding on the outcome, the owner better get it right.  And getting it right hinges on planning and preparation.

Without adequate planning and preparation, the owner will inevitably pursue a passive approach to selling a company, and we have all heard the horror stories that result.  The business isn’t ready to sell – there are major policy, operations, and financial issues that have not been addressed.  The books and records are a mess.  Nothing has been done to identify the true market value of the business.  The alleged buyer strings along the seller for as long as possible and many times the deal falls apart after months – or years – of negotiating.

“We look to begin work with business owners early on, to develop proactive strategies that offer greater control and maximize the outcome,” says Achim Neumann, President and CEO of A Neumann & Associates, a mergers and acquisitions firm in NY, CT, NJ, PA, MD, DE.  “With the proper guidance, business owners can schedule, plan, and engineer a successful exit to suit their unique requirements.”

A proactive exit strategy can be powerful and effective.  It allows a business owner to obtain a higher cash yield from the sale, as well as to maintain leverage and control of the process and negotiations.  With a proactive strategy, the business seller, not the business buyer, sets the pace and drives the process forward.

The advantages of starting early are significant:

First, time is available to realign organizational objectives and prepare the company for acquisition, thereby enhancing it as an investment opportunity.  “Time to plan, prepare, and create maximizes the value of the business,” says Neumann.  “The differences can be dramatic.”

In addition, leverage, control and credibility are more easily preserved on the sell side of the table when there is a good plan in place.  A lack of planning or running out of time concedes leverage and control of the sale to the prospective buyer.

Furthermore, specific requirements for the deal structure, tax considerations, or specific terms and contingencies can get addressed far in advance.  “The ultimate objective is to maximize the net cash from of a business sale.  Planning for these deal-specific elements is necessary to maximize after tax proceeds,” says Frank Arcoleo, Managing Director for Central Pennsylvania.  “Finding out about these issues and trying to address them deep in the negotiation process could undermine the deal.”

With adequate time and planning, there is an opportunity to discover and address issues large and small.  Business Sellers have time to develop appropriate message points to address potential buyer concerns and to present them in the marketing package.  Without proactive attention, key issues can slip by unnoticed, and this can potentially deteriorate the perceived value of the company when they surface during negotiations.

Design and plan a successful exit first, and then sell the company, and you’ll never go wrong.