Selling a complex business requires more than putting together a valuation and taking the company to market. At Murphy Business Sales North Fulton County, M&A Advisors John Charleston, Phil Eleson and Tony Samples help business owners prepare for the questions, scrutiny and considerations that come with a complex transaction. The process can include analyzing your business through a financial and operational lens similar to the one sophisticated buyers may use. Private equity firms, family offices and strategic buyers will evaluate your company closely, and if your information is not organized to answer their questions, you may face unnecessary uncertainty once the sale process begins.
You should not have to wait until a buyer begins due diligence to discover how that buyer sees your business. Financial modeling for a business sale can help you prepare before those questions reach the buyer. By analyzing your performance, building a forward-looking forecast and examining your business the way a buyer may, you can identify potential concerns and prepare for due diligence before it begins.
Understand Your Business Through a Buyer’s Eyes
You know your business from the inside. You understand your customers, operations and day-to-day performance. A buyer, however, needs to determine what the business is worth, how sustainable its performance may be and what risks could affect the investment.
That difference in perspective becomes particularly important when you are preparing for a larger or more complex transaction. John B. Charleston, III, MBA, CM&AP, Principal, Business Broker & M&A Advisor, brings an analytical approach to helping sellers understand the questions and considerations that may matter to buyers and the people funding the transaction.
Charleston explains why that shift in perspective matters: “So for some business owners, they’re running their business on a day-to-day basis. They understand at a high level their financials. But do you really understand your financials and how a buyer or a banker will evaluate your business and your financials? And it’s important for you to know the other side and the key constituencies that will be involved in the transaction.”
For a larger transaction, those constituencies can include banks, private equity firms, family offices and strategic buyers. Knowing who will be evaluating your business and what they may want to understand gives you a starting point for preparing the information they will review.
Turn Your Business Data Into a Clearer Picture
Financial modeling brings your business information together so you can examine performance from multiple perspectives. You can look at monthly results, year-to-date performance, rolling 12-month performance and a three-year forecast.
Rather than simply reviewing historical results, this analysis helps you connect your past performance with your expectations for the future. It can also help you identify information that may require additional explanation before a buyer sees it.
That buyer-focused analysis is particularly valuable when your prospective buyers have teams of professionals examining your company. A well-developed model helps you understand the same information they will be studying.
Prepare Before the Buyer Starts Due Diligence
One of the biggest challenges in a complex sale is discovering an issue after a buyer has already made an offer. During due diligence, the buyer may identify information that changes its view of the company. That can create pressure to renegotiate the purchase price or other terms, a process often referred to as retrading.
Charleston’s approach is to do much of that analytical work before the business reaches the market. “So for us, we’ve done the work up front because we know what those buyers are going to be looking for. So we’re prepared in advance to be able to preempt any sort of retrading that may happen. That buyer is going to be able to go through due diligence, and we don’t want any surprises.”
Phil Eleson, MBA, CM&AP, CBI, CEPA, M&A Advisor, Certified Exit Planning Advisor, also emphasizes the importance of preparing the business before it reaches the market. One of the questions he uses to assess a company’s readiness is whether the owner could step away for 30 days without the business falling apart. Eleson explains, “This 30-day test, you know, we’ll ask owners about if you go away for 30 days and you come back if the business is in trouble, if there’s issues, if there’s things that you have to address that fell apart, let’s say while you were gone, then you probably don’t have a business that’s quite ready to sell.”
If the business depends heavily on you, that dependency can become a concern during a sale. Eleson recommends establishing systems, processes and key personnel who can continue running the business when you step away.
The objective is not to eliminate every question a buyer might ask. It is to reduce the number of questions that catch you off guard and make sure you have a clear understanding of the information behind your business before the buyer begins its review.
See the Difference in a Complex Transaction
Murphy Business Sales North Fulton County applied this approach to an eight-figure cybersecurity company that Murphy ultimately sold to a private equity firm. The transaction was taken to market without a predetermined price and attracted interest from private equity, family office and strategic buyers. The company received eight letters of intent before the process was narrowed to two buyers, ultimately resulting in a sale to a Chicago-based private equity firm.
For a transaction of this complexity, the financial model gave the team a way to evaluate the company through a private equity lens before the buyer began its own diligence. The financial model tracked monthly, year-to-date and rolling 12-month performance while also providing a three-year forecast, giving the team a structured way to evaluate the company’s historical performance and future outlook.
That kind of preparation begins well before a buyer sees the business. Tony Samples, CMAI, CM&AP, M&AMI, M&A Advisor, Merger & Acquisition Master Intermediary, emphasizes the importance of understanding the company before taking it to market: “For us the most important part of the deal is before we ever go on the market, the most important part is for us to know as much as we can about that business.”
That approach means looking beyond the headline numbers to understand your business’s operations, personnel and other factors that could become relevant during a transaction. For more complicated companies, that deeper review can also help identify areas where your business information needs to be clarified before a buyer begins its own analysis.
This is where financial modeling becomes more than an analytical exercise. It becomes part of the preparation that helps you enter the market with a clearer understanding of what you are selling and what a buyer is likely to examine.
Protect the Value You Have Built
You have spent years building your business. When you decide to sell, preparation can help you present a clearer picture of what you have built and anticipate how buyers may evaluate it.
Financial modeling for a business sale gives you a clearer picture of your performance, future expectations and the questions a buyer may raise during due diligence. Preparing that information before you go to market can give you more time to address potential concerns and enter negotiations with a stronger understanding of the business you have built.
If you are considering selling a complex or highly valuable business, contact Murphy Business Sales North Fulton County to discuss your goals and how you can prepare for the sale.