Around the Web: A Week in Summary
A recent article from business.com entitled “How to Sell Your Company With Grace” explains the advice that one entrepreneur wishes he’d received before selling his company.
Alex Bates sold his ten year old artificial intelligence company for $37 million in 2016. During his ten years as an entrepreneur, he and his partnered learned many lessons the hard way on their road to success. Now he works regularly with founders of AI companies as an investor and wishes that they could learn from his mistakes and hard learned lessons. Here’s what he wishes to pass on:
- Ignore what the competition is doing. While it can be tempting to get intimated by competitors’ press releases and progress, getting sidelined and distracted is the most detrimental thing you can do for your company.
- Use third parties to break stalemates. Even with the best partner dynamic, there is bound to be disagreements that reach a stalemate. Having an unbiased, outside perspective will be instrumental in resolving issues.
- Bootstrap for as long as possible. Offering consulting services is a great way to generate instant revenue and get a firsthand look at what your target market’s needs are.
- Raise money on your own. Being a self-sustaining company can be challenging but it can also afford you the luxury of raising money on your own terms and timing rather than having to answer to an investor.
- Have a clear exit plan and terms. Entering negotiations already prepared with what you’re willing to budge on and what you’re set on will make weeding through viable deals and uninteresting ones that much easier. Having a plan will set you on the path to getting what you’re looking for out of the sale process.
A recent article from Business in Vancouver entitled “Unravelling transaction multiples, business valuation mysteries” explains the key factors that contribute to business value and how they’re commonly misunderstood.
It’s not uncommon for business owners to hear about another company in their sector that sold for a specific multiple and to therefore believe their business will carry the same value. Unfortunately, not only is the multiple passed through the grape vine sometimes inaccurate, simply being a similar business with similar revenue doesn’t promise you the same outcome. Here are simple ways to understand your business’s value and to cut through the rumors and misunderstandings:
- Focus on what is adding value in your business, not the multiple.
- Understand that every business is different and this will affect your valuation differently than theirs.
- Value does not equal price. Just because your business is valued at a certain amount does not mean that is what it will sell for.
- Remember that buyers purchase the future, not the past. Therefore the potential of your company will outweigh how well it has performed up until now.
- Pay attention to working capital, while it may seem miniscule and mundane to daily operations, it will matter to a potential buyer or investor.
A recent article from Divestopedia entitled “Three Ways to Sell a Company” explains the different ways in which an owner can exit their company and what to consider regarding each option.
Business sales in the middle market are on the rise and many owners are being faced with decisions to make regarding the sale of their company. When it comes to how to sell, business owners have three basic options:
- Auction Process – This conventional way to sell a company is common amongst retiring owners and sells the company to the highest offer. This option involves a lot of hours on both the owner’s and banker’s behalf.
- The Negotiated Transaction – This option is more popular for owners who aren’t looking to retire quite yet but are looking to reduce the amount of risk they hold as an owner. The process involves selling a stake of your business to a financial partner while continuing to work in your business for a few more years.
- The ESOP – An ESOP, or Employee Stock Ownership Plan, gives employees the opportunity to buy the owner out in a potentially tax-efficient manner that ensures that the company remains independent. This option is popular among companies that have a steady revenue stream and strong management.
Selling a business can be an exciting period of great change in an owner’s life. While there are plenty of decisions to be made, careful planning and consideration are key to a successful exit.