I AM SELLING MY BUSINESS

Selling a business is one of the most consequential financial decisions you’ll ever make. Most sellers of a business face a structural disadvantage. Whereas many buyers have bought multiple businesses, many sellers are selling their businesses for the first and only time in their lives. Buyers know how to point out your business’s flaws in order to justify a lower price. The success or failure of the sale from your perspective hinges on pricing, structuring, and financing that business that is commensurate with its profitability, growth, strategic fit with the buyer, and risk profile.

Price

Whether a lower or higher price is justified by the business facts and potential is a function of the certainty (or lack thereof) that the business will generate income consistently, which we label “risk.” The most powerful step you can take to counter the imbalance between your experience selling businesses and that of the buyer is to be prepared with an independent appraisal of your business. The business appraisal will enable you to see your business through the buyer’s perspective, prepare for arguments for a lower price, and position you to address or refute them.

While the undesirability of accepting too low a price is obvious, asking for an unjustifiably high price is also self-defeating. Ask too high a price for the business, and you risk losing the opportunity altogether as the buyer moves on to sellers they consider more realistic. This could mean throwing away months or even years of positioning your business for a sale and having to start the whole process all over again.

The power of the business valuation is that it puts you in the Goldilocks Zone - not too high and not too low.

Terms

Price and terms are dancing partners. The give and take between valuation and the terms of payment (such as earnouts, seller financing and post-sale employment contracts) often enable deals that would be impossible to achieve on price alone. You can sometimes achieve a higher purchase price by accepting terms favorable to the buyer, or you can make concessions on price if you secure favorable pricing in exchange. But how do you know how much to concede on price when agreeing to more buyer-friendly terms? What is the impact on a $10 million nominal price if you agree to an earnout?

Terms complicate the purchase negotiations sharply, and it can be difficult to make sure that you aren’t accidentally accepting a lower price than you had intended. The business valuation will help you negotiate the proper give-and-take so that the balance of price and terms match up with the business’s value and enable you to achieve your desired outcome from the sale.

Strategic Fit

If you want to maximize the price for your business, “fair value” won’t get it done. Savvy sellers think in terms of “unfair value.” Other sellers achieve this - why not you? The way to achieve unfair value is to deeply understand the strategic fit or thesis from the buyer’s perspective. With careful study of the buyer’s acquisition history, capital structure, and strategic objectives, you can position your business in such a way that the seller will pay well above fair value and be glad to do it.

Deep study of the buyer or buyers in this manner, enables you to tailor a value narrative that feeds their needs and desires and addresses their fears. It also puts you in the driver’s seat. Rather than hoping that buyers will make offers, buyers will be hoping that you accept their offers. That psychological shift alone gives you powerful leverage to achieve the deal that you dream about.

Financing

As a seller, you may be asked to assume some of the risk of the business sale by agreeing to finance the purchase, through earn-outs or seller financing. These terms may be necessary to close any deal. An independent business appraisal will help you understand the cash-equivalent value of the deal and decide what financing terms are appropriate for you to accept.

A rigorous appraisal provides a highly relevant strategic analysis that will empower you to negotiate from a position of strength. By retaining High Score Strategies, you are tilting the odds of a successful transaction in your favor. Put our rigor, market data, transaction experience, speed of delivery, and independence to work for you and gain the edge for a successful outcome.

An attractive price doesn’t just happen. You need to fight for it, but you don’t need to fight alone.

If you’re considering or are actively pursuing a business sale, valuation expertise can help you seize good opportunities, and manage your risk, which will put you in a position to get a good deal. Contact us at High Score Strategies to set up a consultation.

CONTACT US