As a business owner, selling your company can be the most difficult and important career decision you will ever make. Very often, sellers make reactionary or event-driven decisions regarding a business sale. A poorly-planned sale can often lead to a less than favorable outcome. The likelihood of a successful transaction is increased dramatically if you take proper steps before initiating a sale process.
One of the most vital questions to help you to make sure you have properly prepared your company before pursuing a transaction is: Do you have an experienced, knowledgeable management team?
The reason this question is so important is because it typically takes the longest time to address. Trying to sell your company without an effective, capable management team in place can make a sale more difficult to pursue.
While some acquirers might not need a management team after an acquisition, most will. Having a good management team that can stay with the company after a transaction will allow you to approach more buyers. The increased competition will help maximize the price paid for your company.
First off, consider how critically involved you are in the business. If you are active day-to-day, you need to consider whether your management team is capable of running the company if you were to leave for any reason. Developing the next level of management to effectively run your company in your absence is critical. Frankly, this is not just good exit planning, it is good business planning. If something should happen to you, the owner, what would happen to your company and what would be the effect on your family? The considerations you have for your family are similar to concerns a buyer has contemplating an acquisition.
Most buyers are going to focus in on this issue immediately. They need to ascertain whether, once they own the business, they can effectively run it without you. Your willingness to stay on after the acquisition can mitigate some of their concerns, but it will not eliminate them entirely. Buyers are reluctant to give owner/managers “walk-away money” before a successful transition. This could require you to wait until some point in the future to receive the entire purchase price. As circumstances change, one of you is bound to feel like you are getting a bad deal when final payments are made.
Getting a good management team in place takes time, maybe a long time. Getting ahead of this issue before a sale will help you better achieve your transaction goals.
Jack DiFranco is the National Managing Principal for Grant Thornton's Private Equity Services and author of The fine line between love and fear: Exploring the relationship between entrepreneurs and private equity, a recent white paper from Grant Thornton and the Association for Corporate Growth.