As a private senior housing business owner, you know that every major decision requires careful thought and preparation. And what bigger decision is there than opting to sell your business?
If you think a sale may be in your future, it’s not as simple as putting up a for-sale sign and inviting bids. There are lots of things you need to take into consideration, and many steps to prepare. Making strategic decisions will help you achieve the highest possible valuation for your company. Here are some points to consider when planning the eventual sale of your business:
- Make yourself redundant – You need to remember that you’re selling the company, not yourself. Prospective buyers will want to see a strong supporting management team. This indicates that the business will continue to be successful long after you’re out of the picture. An easy question to test this is: If I go on vacation for a month, can the business run on its own? The best advice is to “make yourself redundant” before a business sale starts as this can become a deal breaker. A buyer should be buying your business and not you. You need to demonstrate that the business can flourish without you so that you can exit.
- Prepare Early – You need to start thinking about ways to maximize profitability before deciding to sell your business. Starting these initiatives in the middle of a sale process means you missed your best opportunity to enhance value. Ideally, you want to have demonstrable and higher earnings when it’s time to sell. Focus on achieving those operational efficiencies, cost reductions, and other value enhancers in advance so they’re easily demonstrated to a buyer.
- Look at cost efficiencies – You don’t need to wait for a transaction to clean up the balance sheet and improve efficiencies. Look for opportunities to remove non-business assets (does
the business really need that boat or condo?) and monetize redundant or under-used assets ahead of a transaction. Focus on spending and expense control opportunities.
- Have strong financial controls and processes – Having a good CFO/controller/director of finance in place is a good start to implementing strong financial controls. Take time to really understand your business operations and look at profitability from an objective standpoint. Reliable financial statements and accurate, timely reporting are attractive features that often influence a buyer’s decision. Presenting your business with solid cash flows, strong management teams, and lower capital expenditure requirements will position your business as an attractive acquisition.
- Reduce customer concentration – Diversification is more than just a concept for managing your stock portfolio. To many buyers, an ideal business has a broad customer base with little customer concentration. Some customer concentration may be an unavoidable reality for many businesses. Having signed contracts with customers and being on approved bid lists provides potential buyers with confidence that customers will be retained with the business even after the transfer of ownership.
- Articulate your vision – Buyers understand good businesses — but you need to “show them the dream”. Take the opportunity to clearly articulate your growth story to buyers and help them understand the vision and goals you’ve set for the business. Describing the company culture can be a key to helping buyers understand what the future business and prospects could look like.
- Offer a realistic and supportable forecast – To most buyers, you’re selling the future and future cash flows. Have a realistic and supportable forecast. This points to the credibility of management and the quality of the business. Providing potential buyers with forecasts that are reasonable, believable and achievable (with some degree of specificity or detail) can further demonstrate the underlying value of a business.
- Separate family issues from business issues – When it’s time to sell the business, you need to take the “family” out of the family business. Surface and address hidden family issues where possible, clean up excluded assets that may be included in the business and restructure “shareholder expense habits” to proactively normalize your books for the sales process prior to putting the company up for sale. From a buyer’s perspective, this provides increased confidence in the business and gives greater certainty in the negotiations and decision-making process.
- Working capital: understand it, manage it, reduce it! – Working capital is often an overlooked source of value, but it can be difficult for an owner to firmly grasp. Working capital is the lifeblood of a business, and buyers expect to receive a “normal” level. Many private businesses have challenges with properly managing this “cash” in the business (AR + Inventory + prepaids – AP), and many have room for significant improvement. Managing working capital requires both effort and time, but it can free up “trapped” cash and can lower the total level of working capital buyers expect to be delivered.
- Seek professional advice – Advice from seasoned advisors can provide you with sizable savings and add value. Ensure that you have the right team of professionals helping you with accounting, tax, legal, transaction and mergers and acquisitions matters. Each will have their own role in the sales process and can provide you with different perspectives and expertise in their respective areas.
To learn more about how our Private Senior Housing Mid-Market practice can help your private business prepare for sale, contact us by clicking here.