As private equity investors, we are buying or selling companies all of the time. It’s because of this role that I have the good fortune of seeing both sides of the capital raise or sale discussion. When having this discussion there are numerous items of importance, but given that I only have a page, I am going to focus on three main themes:
• financial statements,
• strategic planning
• management team
Preparing high quality financial statements is the first thing that you need to do in order to be ready to sell your business or take on a capital partner. If your financial statements are poor, you send the signal that you may not know your business as well as you could or should. And from a value perspective, if you miss something in the favor of the buyer, they will certainly find it and use it to reduce the value of the business; however, if an error found increases the value of the business, you won’t hear about it until after close, if ever. Having good financials and financial practices is a good indication to a buyer or small business investor that you have a well-run business and can even effect value positively. Good numbers allow you the ability to truly understand the value of your business, level setting expectations, including any adjustments or add-backs for legitimate one-time and extraordinary expenditures as well as family or non-business related expenditures.
If you are raising capital, you are trying to get a potential capital provider excited about the investment opportunity, and of course if you are selling, you are trying to show the future owner that you have left them some upside in value to justify the purchase price. The process of developing a good strategic plan will help you tell your story and possibly influence how it will be received by any potential buyer. It will force you to look for facts or data that can support the story you are trying to tell. If the data does not support it then you will know that you will need to make adjustments. Importantly though, it will also help to ensure that everyone in your organization is on the same page. A real detractor to a buyer or capital partner is not having your senior management team on the same page about the direction of the business and vision for the future.
Finally, I want to talk about the team. Now the team that I am talking about is different than your senior management team. This team includes outside specialists that take part in these very important events each and every day versus most owners, who will only take part in this type of life changing event once, possibly twice, at best. These specialists include an attorney (and not just any attorney, a mergers and acquisitions attorney), an accountant, your controller or chief financial officer, select senior managers, and potentially a financial planner or certified exit planning advisor. Whether you are raising capital and seeking a new partner or selling your business altogether, some combination of this team is key. Having outside specialists can get expensive, but in the end, it can be the difference between a good and bad transaction.
There are certainly many, many things to consider whether you are raising capital or selling your business, but the one thing I will leave you with, and encourage you to do, is to be prepared by starting as early as you can in the process to maximize your chances of success. And know what success looks like for you and your business.