CDA Approach To Selling Your Business
Most business owners have limited or no experience in selling businesses. CDA provides the professional advice and expertise to ensure effective positioning and the greatest possible sale price for our clients. Enlisting the assistance of a professional advisor like CDA allows the business owner to remain focused on the day-to-day operations of the business.
CDA’s preferred process of coordination with a business owner may begin years before the decision to sell the business. Ideally a client considers developing a sucession or exit plan (see Success Plan Presentation). We offer to serve on a client's board of advisors/directors to develop an understanding of the business and the client. But years’ worth of anticipation and preparation are not always available. We adapt our process to each client’s situation. While functioning closely with the business owner’s accountants, financial advisors, and attorneys, we are able to appropriately structure the transaction to provide the business owner a clear understanding of the financial implications involved with selling the business.
We begin the process developing an understanding of the following questions:
- Where has the business been and where is it going?
- What are the strengths and weaknesses of the business?
- What opportunities are there to improve the profitability of the business?
- What potential threats exist that may reduce the profitability?
- What are the critical success factors for this business and has the business attained them?
- Is the business generating an adequate return on the assets employed? If not, why?
- What are the capital needs of the business over the next few years?
The next step uses the information generated from the above questions to prepare a valuation model of the business. That model helps the business owner understand what factors drive the value of the business and why the business will have different valuations, depending upon the buyer. The model also demonstrates the impact on the value of making certain operating improvements or increasing sales.
Upon review of the valuation model, the owner may wish to proceed with the sale of the business or possibly wait and improve the operating results to realize a higher value. CDA may recommend waiting to sell until the company improves or until implementation of a major growth strategy. Or we may recommend conducting further review to assist management in developing a plan to increase the value of the business. Although the business owner may not be prepared to sell—or it may not be the right time to sell—CDA has provided the information necessary to improve the business’ value.
Once an owner decides to sell all or part of the business, CDA evaluates the various alternatives. For example, the owner may want to sell the business to the management team or may prefer to sell it to a strategic buyer. General alternatives include:
- Partial sale (control or minority interest)
- Stock repurchase/capitalization
- Sale of entire company
- Strategic or corporate buyer
- Financial buyer/management buyout
- Employee stock ownership plan.
Effectively marketing and selling a business involves more than hanging up a “for sale” sign or listing it on the Internet. CDA has developed a general outline and tailors it to fit each client’s situation:
- Prepare a Confidential Business Review that provides a potential buyer with a general understanding of the business so that the buyer may determine the level of interest in pursuing the business. The Confidential Business Review highlights all the positive attributes of the business, why it is a good acquisition, and its future opportunities.
- Identify potential buyers and prioritization of such buyers.
- Determine the number of buyers to approach (limited or broad group).
- Contact buyers and provide them with the Confidential Business Review upon execution of a confidentiality agreement.
- Request that interested buyers submit letters of interest outlining a price range, general terms, conditions, and critical activities required to accomplish and close the transaction.
- With a broad group of buyers, narrow the field to a small group who will met with management and tour facilities and secure additional information.
- Request letters of intent (i.e., detailed offers) that are evaluated by CDA and reviewed with the business owner. CDA and the business owner will select a buyer with whom to move forward.
- The buyer completes due diligence (i.e., a detailed review of the business), and the terms and conditions of the definitive purchase agreement are negotiated between the parties.
- Close the transaction.
Even if you, the business owner, are not planning to sell your business for a few years—or perhaps you are considering transitioning the business within the family—we would like to meet with you now so we may get to know you and your company and then help you successfully plan the transition of your company. Even if you are not planning to sell your company, we would like to help you understand the value of your company so that you may operate it from a “building value” perspective.
Contact CDA today to schedule a confidential appointment.