Exit strategies: Do advisers help or hinder?

While every entrepreneur knows how to package a product or service to achieve a profitable sale few would claim to have the same competence when it comes to selling a business.

That is a specialist activity with its own set of legal and accounting issues and it is an area where experience counts. 

That said, the entrepreneur knows his business and should understand better than anyone where it has growth potential, which is the basis for a higher sale price. 

The same may be said of the inexperienced investor. Venture capital firms and experienced investors who have participated in a number of investments should have some experience working with professional advisers and probably have some existing relationships they can utilise.  

Selling a business to a large global corporation based on strategic value is not something many investors have experience with and to be frank few advisers have either. 

In my experience there are few professional advisers who understand how to position a sale around the business potential, whether it’s financial or strategic value. 

Most often they tend to push the deal back into a conventional framework based in an EBIT multiple and in doing so miss the whole point of the exercise. They waste a lot of time and tend to get in the way of the deal being done properly, so the choice of adviser is critical. 

Apart from the support you will need from professional legal and accounting firms should you use a business broker or investment banker to help you sell your business?  

The answer depends on how well you understand the process of selling a business, whether you already have willing buyers in your sights and whether you have prepared the business for sale.  

If you are unsure how you should prepare your business in order to achieve the best offer or if you are uncertain how to attract the right buyers, getting help from professionals who undertake those tasks on a regular basis makes sense. 

Even an experienced entrepreneur who has sold several businesses may like to have an adviser in the team to assist with negotiations.  

There is considerable benefit in having an objective, knowledgeable person on your team to provide feedback and suggestions as well as to keep the negotiation process moving forward.

The key to the use of such professionals is to use them to assist the investors and internal management team in the process, not to take control.

Too often business owners have allowed professionals to control the process and the negotiations, not recognizing that the adviser’s primary motivation is the commission on a quick sale. 

The entrepreneur who understands his or her business well and spends time identifying and connecting to the best potential buyers will generally achieve a much better price for the business, with the best buyers corporations able to best exploit the potential in the business. 

Positioning the business with potential buyers and preparing it so it can support such potential is best undertaken by the entrepreneur. It takes time and cannot be undertaken properly if the business is rushed into a sale.

At the same as time the entrepreneur is preparing the business for sale and positioning it with potential buyers, professional legal and accounting firms need to be appointed to assist with preparation and sale transaction support. 

Better sale prices are achieved where business risk for the buyer is minimized and that process often requires the business to undergo a vendor’s due diligence process as part of the preparation. 

By proactively undertaking his own due diligence review an entrepreneur can discover risks in the business that can be addressed long before a potential buyer emerges.  

That activity improves the business and significantly reduces buyer due diligence costs and time during contract negotiations. A business which is well prepared for buyer handover will attract better buyers and a better price.

The smart entrepreneur needs good advice and smart people to support the sale process, with the result usually a much better price.