Originally published by Forbes, featuring Frank Williamson.
We’re grateful to Forbes for the opportunity to contribute to this important conversation. Read the full below.
If you’re like most entrepreneurs, you rarely have reason to interact with an investment banker. Most of what investment banking professionals do, such as structuring company sales, mergers, acquisitions or equity and debt raises, mainly applies to business owners preparing for an exit or a significant expansion.
It’s rare, but not unheard of, for business owners to move forward with a sale without first hiring an investment banker. The reason most people choose to hire a professional, though, is because selling a business is a huge undertaking, not just in terms of complexity but also in the emotional weight it carries. For owner-operators who are still actively running their businesses, it’s often simply too much to take on.
A lot of investment banking professionals are great at their jobs, but they frequently specialize in one area of the market and rarely venture outside that lane. This can make it frustrating for entrepreneurs who need help with a business sale but don’t know where to turn.
The key to finding the right investment banker is to ask the right questions. If you’ve found yourself in this situation, here are four questions you should be asking.
1. How does hiring you benefit me?
If you’ve built a successful business, you’re probably really good at several things, like understanding your customers, managing growth and hiring and retaining talented people. But selling your business is a step into the great unknown. All your hard work could result in a less-than-desirable outcome simply because you don’t know how to manage the negotiation process, evaluate deal terms or thoroughly vet potential partners.
The investment banker you choose to work with should be able to do more than execute the basic steps of the process. They should also have a clear, strategic approach that aligns with your own.
Ask about their preparation process for negotiations, especially how they get the essential people to the table and set reasonable expectations. Understand their thought process when it comes to evaluating prospective investors or acquirers. And maybe most importantly, find out how they view their job as part of a larger transaction team, which also includes, at minimum, an attorney, a tax expert and a financial planner.
An investment banker should be there to help you navigate an unfamiliar process. If a candidate seems likely to waste your time because they don’t understand your goals, consider looking elsewhere.
2. Would you even want to work with me?
The honest answer to this question might surprise you. Every investment banker has different specialties and preferences, and many focus on companies of a certain size or within a particular industry, often sticking to what they know best.
In addition, investment bankers at large firms often have very limited time and have to be choosy about the deals that they work on. When a deal is too small or complex, or the outcome is in doubt, they might prefer to hand it off to a colleague who can spend the necessary amount of time to ensure the best outcome. Instead of taking a percentage of the final deal price, these boutique investment bankers might work on an hourly basis, for example.
The bottom line is that different investment bankers serve different needs in the market, and it’s crucial to find one who fits yours. Don’t try to fit a square peg into a round hole.
3. What does assisting me during the business sale journey look like?
The majority of investment bankers view themselves as playing one role in a bigger process that also involves bankers, lawyers, accountants and other deal team members. While the buyer and seller are involved the entire time, it’s common for investment bankers and other specialists to take the lead at different points, with the others stepping back out of respect.
Even in ideal conditions, selling a business takes time. A 10- to 12-month timeline is typical, including multiple offers and counteroffers. It’s often an emotional journey filled with highs and lows. However, an investment banker’s initial legwork can help the process go more smoothly. That preparation can include qualifying potential deal partners, envisioning a game plan to test buyer demand and preparing executive summaries to set the table for negotiations.
Some clients prefer to have their investment banker there for the entire journey, actively working toward the best outcome and helping to build a productive post-deal working relationship.
An attentive banker can help monitor the progress of legal documentation, serving as an intermediary in case there are any sticky business issues. In addition, because of their experience with previous deals, they can anticipate common roadblocks to a successful deal and help guide clients through dangerous or uncertain situations.
4. Would your past clients recommend you?
Investment bankers are usually happy to show off their deal history, but knowing the names of those previous clients isn’t nearly as helpful as being able to speak to them directly. If an investment banker is happy to connect you with those clients, it’s a good sign that they’re proud of the work they’ve done.
If you do get the opportunity to speak with a former client, find out as much as you can about their experience. If they don’t rave about the investment banking assistance they received, ask why that might be.
Driving A Crucial Decision
The majority of entrepreneurs only sell one business in their lifetime. A lot rests on the success of that sale, with the proceeds helping to fund retirement or other opportunities. It’s vital to find an investment banker who meshes well with your personality and brings the necessary experience to help you get the best deal possible.
As you choose your investment banker, make sure they’re going to make you feel valuable, comfortable and well taken care of all the way through the sales process.
