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Dear Oaklyn Consulting,
I don’t know if it’s the economy or the time of year, but it feels like every time I turn around, there is another M&A firm calling to see if I am in the market to sell my small business.
I know that this is something that I want to do in the next five years, but right now isn’t the time. I feel that I need to take the steps to build up my business so it can run without me being at the center of every decision before I consider a meeting with the M&A firms.
What are the smart steps should I be taking over the next few years so that I can have a sellable asset?
Thanks.
From Oaklyn Consulting
Congratulations on planning ahead. You’re already on the path to having a more sellable asset than people who are less intentional about their path.
In our experience there are 2 things that make for a truly successful sale – a business with the characteristics of a sellable asset, and an owner with practice selling such an asset.
The characteristic of a sellable business is that it is a going concern that can operate independently of its owner. For small to mid-sized businesses, this means:
- It is not dependent on a single person or relationships to operate (i.e. the founder role and the CEO role are no longer the same person).
- It can operate predictably, maybe because of long-term contracts with clients.
- It has clean financial statements that have been validated by a third party.
- It has a reason to continue existing.
- It is easy for a new owner, who brings as little to the table as money, to assume ownership of the business.
Just as importantly, the owner’s ability to sell a business well comes from having made at least one previous attempt at this project. This might mean that they:
- Have a mental map of the business landscape, in which they know the other organizations for whom joining forces would make a difference competitively. Peers, competitors, customers or suppliers could all be candidates.
- Have started conversations with any of these companies in the past, exploring why a business combination might make sense.
- Have exited other businesses in the past as an owner, executive or investor.
- Have purchased businesses in the past, learning about sellable businesses from across the negotiating table.
- Have begun the sale process for this particular business before and then aborted the project for any reason.
So, two smart steps to take in the next few years are to make your business more standalone, and therefore sellable, and make yourself more experienced, and therefore better able to sell the business well when the time comes.
