Maximize Your Business Exit: 7 Key Preparations for Selling
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Chapter 1: Understanding the Importance of Preparation
Preparing to sell your business may feel like a distant goal, but it's crucial to grasp what the process entails well in advance.
When you promise your child a reward for good conduct, you're engaging in a form of negotiation leverage. Similarly, when selling a desirable business, you have leverage—until you sign a Letter of Intent (LOI). Typically, the LOI includes a "no shop" clause, preventing you from engaging with other potential buyers while the selected buyer conducts due diligence.
Once the LOI is signed, the dynamics of negotiation shift significantly in favor of the buyer. They can take their time scrutinizing your business, and as days pass, you may find yourself increasingly committed to selling. Savvy buyers are aware of this psychological shift and can prolong the due diligence process, often leading to lower offers or demands for better terms.
With your negotiating power weakened and other interested parties sidelined, you may be faced with the undesirable choice of either accepting a less favorable deal or walking away entirely.
Here are seven proactive steps you can take—before listing your business for sale and signing an LOI—to mitigate the risk of prolonged negotiations and diluted offers:
Section 1.1: Key Preparations Before Signing an LOI
Ensure Your Customer Contracts Include Successor Clauses
Have your customers enter into long-term, standardized contracts that specify that obligations will remain intact despite any ownership changes.
Cultivate a Group of Referenceable Customers
Acquirers will want to understand why customers prefer your business over competitors. Build a list of 10 to 15 customers who can provide positive references before the LOI is signed.
Align Your Management Team
During due diligence, potential buyers will likely want to interview your managers independently. Ensure that your team is unified in their vision and approach.
Consider Obtaining Audited Financials
Having your financial statements audited by a reputable accounting firm can enhance buyer confidence and reduce perceived risks.
Be Transparent About Risks
Every business has its risks. It’s best to disclose any potential legal or financial issues before signing the LOI.
Negotiate the Due Diligence Timeline
Buyers often request a 60 or 90-day period for due diligence. Try to negotiate this down to 45 days—or even 30 days with certain financial buyers. This will signal your unwillingness to allow the process to drag on indefinitely.
Communicate That Other Buyers Are Interested
While you may consider the buyer’s offer to be the most attractive, let them know that there are other interested parties involved.
By following these seven strategies, you can better safeguard your business's value as the negotiating power shifts from you to the buyer.
Chapter 2: Additional Support for Business Growth
Whenever you're ready, here are three ways I can assist you in expanding your business while reclaiming your freedom:
Attend Our Freedom Workshop
Join this interactive session designed to help you regain the freedom you deserve as a business owner.
Participate in Our Fast-Track Masterminds
Collaborate for 10 weeks with six other business owners focused on scalability, investment, and freedom. Reach out if you're interested in joining our next session.
Engage in Private Coaching
If you have an established business and wish to accelerate your growth, let’s work together to implement tailored strategies. Contact me today to share details about your business and the outcomes you're seeking.
Explore the essential elements of a Letter of Intent and how to negotiate effectively.
Learn how to craft a compelling Letter of Intent that sets the stage for successful negotiations.