The Three Phases of Selling Your Business

When you’ve built a business from the ground up, the idea of selling it can be nerve-wracking. How will you know when the time is right to sell? How will you find the right buyer? How will you navigate tax implications of the sale? Selling a business is a multifaceted process that requires careful planning, negotiation and expertise across legal, financial and operational domains. Whether you want to sell in four years or four quarters, start thinking now about your strategy – define your endgame, enlist the help of specialized advisors and get familiar with three crucial phases to prepare your business for exit.

Phase I: Evaluate Exit Strategies

An exit strategy could mean a merger with another company, selling the business, passing the business on to a family member or another successor, among other options. As you evaluate a host of exit strategies, look through a potential buyer’s eyes and consider your business from an outside perspective. Buyers or potential merging partners want to see a professional management team that is organized, timely and provides accurate financials with solid, predictable revenue and appropriate margins. On the other hand, potential buyers or merging partners are also looking out for “value killers” in a potential deal. Some of those can be a business that lacks the skills, experience, or capacity to manage increased complexity and scale; providing non-GAAP financial statements and financials not delivered by month; recent cybersecurity incidents and cyber vulnerability; customer concentration; and excessive sales tax exposures.

Part of a successful exit strategy involves getting clear on your preferred outcome. Are you seeking a private equity buyer? Maybe you want to sell to family offices, strategic buyers, management or employees (such as in an Employee Stock Ownership Plan, or ESOP), or to the next generation (family). Don’t leave it to chance: determine the outcome that makes the most sense for your goals and pursue that relentlessly.

As you consider your ideal exit strategy, understand that the value of your business today is what a willing buyer will pay for its future cashflows. It does not matter what you believe your business is worth if no willing buyers agree. Get the help of an investment banker to understand what the market view is for your business.

Finally, define the endgame for you and your family, as well as for the business and team. Once you achieve clarity on where you want to end up, walk backwards to understand the sale process, the deal team required to achieve your vision, how to position your business for exit, and what exit options are available.

Phase II: Position the Business

To ready your business for a transaction, evaluate ways to enhance your market position, expand your customer base, and innovate your products or services. Internally, focus on strengthening sales and operations; reduce the risk associated with dependencies and concentrations (such as the majority of your sales coming from a small segment of customers); and optimize business systems and enterprise resource planning (ERP).

Additionally, look at your current management. How can you professionalize your team? If you haven’t already, now is the time to establish and improve collaboration and communication. You may even consider improving or launching incentive compensation plans to encourage key employees to stay on board during the upcoming transition and to align staff interests with those of the incoming business owner.

Finally, and maybe most importantly, work with a qualified business advisory service to review and improve your financials. An advisor can help identify and implement any necessary changes to bookkeeping and lock down your enterprise’s financial operations and reporting at an agreed-upon date. Ensure your company is audit ready. Doing these things will make the next phase much smoother.

Phase III: Run the Sales Process

In this phase, which on average lasts six to nine months, you will assemble your deal team, finalize sale preparation, conduct appropriate marketing, pursue indications of interest (IOIs), perform additional due diligence, negotiate, and, finally, close the deal.

As you build out the deal team, consider the key stakeholders as well as the supporting cast, and work to ensure everyone has the information they need. This team should include owners, board of directors, financial advisor, management team, M&A attorney, investment bank, CPA firm, buyer, and the buyer deal team. Your CFO should be the quarterback to help assemble the team and walk them down the field.

Finalizing sale preparation involves several components, including gathering key data and documents, conducting a Quality of Earnings (QofE) analysis, and drafting an accurate and purposeful Company Information Memorandum (CIM). The CIM should include company background, milestones, financial standing, market analysis and clients. Your investment bank is critical to “making a market” for your business.

During negotiation and closing, know your leverage points, set priorities (maximizing sale price or retaining some involvement in the business, for example), and try to attract multiple offers to improve your bargaining position. As you evaluate final bids and the sales and purchase agreement (SPA), remember your original vision. It can be easy to be swayed by the details, but the work you did back in Phase I to define your endgame will help see you through.

Each of these phases can be overwhelming, unless you have the right support. Tap into the professional experience, confidence, and knowledge of a reputable business advisory service to help you navigate the process of selling your business with greater clarity and ease.

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Aprio’s CFO Advisory Services deliver tailored financial leadership and strategic guidance, offering fractional, interim, and permanent CFOs to address the unique challenges businesses face at any growth stage. Our experienced CFOs, backed by Aprio’s in-house professionals, provide hands-on support in areas like cash flow management, capital raises, M&A transactions, and exit strategies, ensuring clients achieve optimal business outcomes. By advising on infrastructure development, profitability management, and decision-making processes, Aprio empowers businesses to strengthen their financial foundations and confidently pursue long-term success. Schedule a consultation today and achieve what’s next at Aprio.com. 

Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain.  

A former Berkshire Hathaway CFO, Eric Krucke advises founder-owned businesses preparing for sale, raising capital, and/or seeking to accelerate growth; Krucke also partners with private equity firms and their portfolio companies, as they seek to maximize value creation from day one.