Selling Smart: Building a Business a Buyer Can Believe In!
The Best Time to Prepare a Business for Sale Is When You Don’t Have to Sell It
Once a buyer is at the table, many of the factors that will determine value have already been established. Issues that arise are rarely easy to fix once a sale process begins. Solutions must be identified early and built into the business over time.
That was one of the central themes of Selling Smart: Maximizing Value Before You Exit, an October 1st panel discussion at Rockwoods in Otsego, MN that brought together perspectives from exit planning, business brokerage, banking, sales strategy, wealth planning and organizational leadership.
Moderated by Jaime Taets, Founder and CEO of Keystone Group International, the discussion included Gary Braun of Pivotal Advisors, Eric O’Brien of Commercial Realty Solutions, Doug Cook of Headwaters Strategic Succession Consulting, Robin Edgar of Wealth Progression Group, and David Miller of The Bank of Elk River.
While each panelist approached the subject from a different perspective, the conversation repeatedly returned to the same principle: a successful transition is built well before the transaction begins.
Buyers See Risk Differently Than Owners
Business owners know their companies from the inside out. They understand the people, relationships, systems and informal ways things get done. Over time, it is easy for those things to simply become normal.
For a buyer, thinking within this context is anything but “normal.”
Doug Cook described the distinction this way:
“Owners normalize risk and buyers magnify risk.”
When critical customer or vendor relationships remain primarily with the owner, when important decisions continue to flow through one person, or when there is little redundancy within the organization, a buyer sees uncertainty. Buyers typically deal with that uncertainty by reducing what they are willing to pay, changing deal terms, or walking away altogether.
Eric O’Brien reinforced that point from the transaction side. Financial performance matters, but once a business is on the market, buyers are also evaluating whether that performance can successfully transfer to them.
“They may make a decision not to buy at all. They may eliminate you as an option very quickly because of the fact that they see that risk.”
That makes transferability more than something that affects valuation. It can determine whether a transaction happens at all.
Predictable Revenue Creates Transferable Value
Risk also shows up in the way a company generates revenue.
Gary Braun emphasized the danger of customer concentration and sales organizations that depend too heavily on a few relationships or individuals.
“Whether you’re selling or just growing your company, there should be an effort to reduce that customer concentration as best you can.”
The same principle applies to the sales team itself. If most new business depends on the owner or one or two exceptional salespeople, a buyer has to ask what happens when those people are no longer there.
The stronger alternative is a repeatable sales engine: one where the company can demonstrate how opportunities are generated, how relationships are managed and how revenue can continue without depending upon a single person.
As Braun explained:
“If you can get a consistent and predictable sales engine going, the company’s worth a lot more.”
A Buyer Is Buying the Future, Not the Past
Historical financial performance establishes credibility, but buyers are not purchasing yesterday’s earnings. They are purchasing the opportunity to generate earnings after the transaction.
That means owners need to connect historical performance to a believable future.
Cook encouraged owners to develop a credible five-year strategy supported by realistic projections. A company that historically grows 8% annually cannot simply project 30% growth without explaining what will fundamentally change to make that possible.
“They’re buying an economic opportunity.”
That opportunity becomes more believable when an owner can clearly define the company’s customer value proposition and identify the core processes responsible for delivering it.
Cook described those elements collectively as part of the company’s intellectual property. Documenting them gives a future owner something far more useful than a binder full of generic procedures: it provides a roadmap for continuing to deliver the value customers actually buy.
The Business Also Has to Be Financeable
A seller and buyer can agree on a price, but that does not necessarily mean a lender will finance it.
David Miller encouraged owners to consider financing before taking a business to market rather than waiting for a buyer to discover a problem.
“Don’t wait for the buyer to go take this number to the bank and see if it’s viable. Take it to your lender ahead of time and see if they believe it’s viable.”
From a lender’s perspective, many of the same issues that concern buyers matter to the bank: customer concentration, dependence on the seller, historical cash flow, realistic projections and sufficient working capital following the acquisition.
The important lesson for owners is that value and financeability have to work together. A valuation that cannot be supported by the company’s cash flow or financed under realistic deal terms may not translate into an achievable sale price.
Build the Advisory Team Before You Need It
Another recurring theme was the importance of having the right advisors involved early.
Robin Edgar encouraged owners to think beyond having individual professionals and instead build a coordinated advisory team.
“All of these people around you should be able to talk to each other and have a communication around that. And that’s better for you.”
The owner should not have to become the intermediary carrying information among the CPA, attorney, wealth advisor, banker, broker and other specialists.
O’Brien offered a transaction-oriented reason for assembling that team early:
“Time kills deals.”
Waiting until a transaction is underway to identify an M&A attorney, resolve tax questions, address financing problems or work through deal structure can create unnecessary delays at precisely the time momentum matters most.
Prepare the Owner, Not Just the Business
Selling a company is not simply a business transaction. For many owners, the company represents their largest financial asset, a significant part of their identity and the source of income that has supported their family for decades.
That makes personal planning inseparable from business planning.
Edgar encouraged owners to think about what happens after the transaction well before the proceeds arrive.
“Begin with the end in mind.”
That includes understanding taxes, post-sale cash flow, estate planning, family dynamics and how the proceeds ultimately need to support the owner’s next chapter.
It is also why exit planning should not begin by immediately changing the business. One of the first steps is understanding the value of the business and related real estate and connecting that information to the owner’s personal financial plan.
As Cook explained:
“You need to know your business’s value and what your current wealth is, and you need to know it’s protected. That’s the best mindset to then approach planning the business sale itself.”
Culture and Legacy Have Value Too
The discussion eventually moved beyond financial measures to something harder to quantify: culture.
Taets noted that buyers are evaluating whether the organization itself can withstand a transition.
“Having a really clear strategy and having a culture that can sustain the change of a transition. That’s really what they’re looking at.”
A leadership team that can execute without the owner provides evidence that the business can continue performing after a sale.
Culture can also influence the seller’s decision
Several panelists shared examples in which owners considered more than the highest purchase price. Employees, customers, legacy and the future direction of the company all mattered.
That points to perhaps one of the greatest benefits of preparing early: preparation creates choices.
A business that is transferable, financeable and attractive to multiple buyers gives its owner greater freedom to consider not only price, but also employees, culture, legacy and what life should look like after the transaction.
The Best Time to Prepare Is Before You Have To
One audience member asked how age should factor into exit planning. The answer broadened the discussion.
Exit planning is not simply retirement planning. Death, Disability, Divorce, Disagreement and Distress, the 5 D’s, can force a transition long before an owner expects one. Edgar encouraged owners to consider each of those possibilities and ask what would happen to the business and family if one occurred tomorrow.
That makes preparation valuable even for an owner who expects to remain in the business for another decade. Many of the things that make a business more attractive to a future buyer are the same things that make it a better business to own today.
Less dependence on the owner, more predictable revenue, stronger leadership, documented processes, a credible strategy for growth and a clear understanding of what creates value contribute to something far greater than financial gain alone: options.
Owners who begin early have more opportunity to improve value, choose the right timing, evaluate different types of buyers, protect employees and culture, consider their legacy, and make decisions based on what they want rather than what circumstances force them to do.
This may have been the most important takeaway from Selling Smart. Exit planning isn’t about deciding today when you’re going to leave your business. It’s about building a business that gives you choices when that day comes.
It can be too late to start that planning, but never too early. Don’t run out of time!
Schedule a private call with Doug
Douglas Cook is a Certified Exit Planning Advisor (CEPA) and is the Senior Value Advisor at Headwaters Strategic Succession Consulting, LLC. He specializes in helping business owners formulate exit strategies while helping to increase the transferrable value of their companies.
