A Look Behind the Curtain: Selling Your Business
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This document discusses key considerations for selling a business, including timing, buyers, price, and dangers. Regarding timing, there is no perfect time to sell and it depends more on when the right buyer is interested rather than market or business conditions. Potential buyers are unlikely to be customers, competitors, or large corporations; the most likely buyers purchase businesses 5-20x the seller's revenue. An accurate valuation requires considering more than 50 potential buyers and negotiating terms, not just price. Employees and customers rarely leave after a sale contrary to common myths, while the biggest post-sale danger may be unfulfilling retirement rather than business fallout.
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A Look Behind the Curtain: Selling Your Business
- 1. Selling Your Business - A Look Behind The Curtain
- 2. A Look Behind the Curtain Timing Buyers Price Dangers
- 3. Timing Q: What is the best time to sell your business? a) When the market is peaking b) When my sales and profit are peaking c) When I’m big enough d) I have no idea
- 4. Timing A: I have no idea
- 5. Timing Timing the market or your business peak is very difficult. 2008 market fall? 18 months early?
- 6. Timing Timing is determined by the Buyers, not Sellers. There is no way to know when the right buyer has the right fit, right deal at the right time for you.
- 7. Timing
- 8. Timing
- 9. Buyers Q: Who is the right buyer for my business? a) One of the largest industry players b) One of my customers c) One of my competitors d) The icons (Google, Microsoft, Lockheed, etc) e) I have no idea
- 10. Buyers A: I have no idea
- 11. Buyers Customers and competitors make the most unlikely and lowest value buyers • There is a good reason they are a customer… • Competitors very often have to much overlap to generate full value
- 12. Buyers The very big often do not bother with the very small. • Most likely buyer is 5x – 20x your current revenue • Often completely unexpected • Buyers priorities shift unpredictably…
- 13. Buyers
- 14. Buyers – Part 2 Q: How many potential buyers do I need to talk to be sure I have the best deal (or any deal at all)? a) < 5 b) < 50 c) More than 50 d) I have no idea
- 15. Buyers – Part 2 A: More than 50
- 16. Buyers - Part 2
- 17. Buyers - Part 2 Remember… You are selling a illiquid asset into an illiquid market There are probably 1 – 5 buyers for every small business It takes 2.5 LOI’s for a deal to actually close
- 18. Price Q: Your golf buddy tells you a story about a friend who sold his business for $100 million, what was the real price? a) More b) Less c) Much Less d) Even less than that
- 20. Price Your price, my terms: So, you got a $20 million* valuation… * 10% cash, 10% stock, 80% earn out * 75% must be in my private company stock * Investors get an 8 to 1 liquidation preference * Conversion price does not prevent dilution Without terms, price means nothing
- 21. Price – Part 2 Q: What’s the best way to know the true value of my business? a) Revenue or profit multiple against public multiples b) What other companies like mine sold for c) Valuation from accountant, ibanker, etc d) Throw a dart
- 22. Price – Part 2
- 23. Price – Part 2 Other answers are reasonable if you are comfortable with being off by 50% Small businesses rarely have good comparables Buyers do not go to valuation school Terms are as important as price
- 24. Price – Part 3 Q: If you hire an investment banker or business broker or accountant or valuation expert, should you believe his valuation? a) No b) No
- 25. Price - Part 3 A: No
- 26. Price – Part 3 Brokers & ibankers can’t help but pitch a high valuation Accountants & valuation pros aren’t as conflicted but still can’t beat the dart Remember, your business is worth what a buyer will pay for it. Trick is to find the best buyer with the best deal
- 27. Dangers Q: What’s the biggest danger in selling my firm? a) Customers will find out and bolt b) Employees will find out and bolt c) My ex-spouse will find out and want their cut d) None of the above
- 28. Dangers A: None of the above
- 29. Dangers Employees and customers rarely bolt- it’s an urban myth Your competitors are already tellilng your customers and employees your business selling (failing or bankrupt) anyway Biggest danger is you won’t like retirement as much as you thought and go right back to building the same business you sold On the ex-spouse, we can’t give legal advice
- 30. Selling Your business – A Look Behind the Curtain Todd Taskey, Principal Stonecroft Capital, LLC 7625 Wisconsin Ave #300 Bethesda, Maryland 20814 240-482-3590