How to Prepare your Company for the Sale in Five Steps

Anyone who founds or takes over a company usually does not immediately think about selling it. The energy first flows into developing the business model. This is also true, because the more successful a company is, the easier it is to sell and the higher the price the entrepreneur can achieve with it. Nevertheless, there are some measures that can set the course for a successful exit at an early stage. 

1. Set your business up for growth

The most important prerequisite for the success of a company is a future-oriented business model. This applies to the start-up phase just as much as to the sale of a company. Fast-growing companies are regularly valued higher than stagnating ones. Smart business managers therefore always develop their range of products and services further and look around for new growth markets.

The term business model is often confused with business idea. The business model approach is an effective tool for developing the potential of a business idea and ultimately laying the foundation for a profitable business activity through systematic work.

A business model is coherent if, on the one hand, it identifies a gap in the market or a real customer need, and on the other hand, in combination with your personal strengths, gives you a fundamental advantage in the market.

Visualisation in the form of a business model canvas is particularly helpful when working on the business model. This now well-known thinking tool summarises all the elements of a business model on an A-4 sheet and also helps to clarify the interdependencies of the core processes.

A business model, once established, should not be a static affair. But many large companies have overslept in the past to adapt their business model and have been displaced by new, disruptive challengers. The keyword in this context is "business model innovation". It describes the company's ability to adapt its own business model to changing environmental conditions as the core prerequisite for remaining competitive in the long term.

2. Keep the finances under control

Potential buyers expect an insight into the financial situation. They calculate the value of the company on the basis of past and forecast figures. If the financial data is incomplete or incorrect, they lose confidence, jump off or are only willing to buy the company at a high risk discount.

Regardless of the sale of a company, accurate accounting is an essential basis for efficient controlling and thus for strategic management. The current trend to replace traditional bookkeeping with paper documents by digital and thus paperless bookkeeping is a challenge for every company at the moment of the changeover, but in the medium term it is also a unique opportunity. Suddenly, all information is available at any time, regardless of location. This not only saves paper, but above all a lot of time. Cooperation with external service providers and consultants also becomes easier, as all relevant information and documents are available at the push of a button.

The impact of the digital transformation in finance goes far beyond accounting. The digitised enterprise requires new skills and processes, and traditional finance must grow beyond traditional functions such as accounting, controlling and reporting to provide new insights and forecasts that accelerate decision-making across all disciplines.

It is particularly important to deal with analytics applications. Because even if financial management first serves to safely steer the company through its daily operations, the ultimate goal is to sustainably increase the value of the company from the owner's point of view. The fact that increasing the value of the company must not be at the expense of the employees, the quality of the customer relationship or the environment is nowadays almost a matter of course under the concept of sustainability.

3. Hire a professional team

Businesses that are very closely interwoven with the person of the managing director are difficult to sell. Therefore, start to de-link the business at an early stage. Hire well-trained staff in every area and at every level and delegate the day-to-day business. This leaves you more freedom for your actual management task. As soon as you start thinking about selling the business, involve key decision-makers in the process. A professional team that can continue to run the business independently of the boss and does not disembark shortly after the sale increases value.

Family businesses are not only the oldest organisational form of entrepreneurial activity, dating back to the Fuggers or Medicis, they have also shaped the development of capitalism and are today rightly described as the "heart of the social market economy". More than nine out of ten companies in our western economic area are family-owned. They represent almost 50% of all taxable turnover and employ more than half of all employees subject to social security contributions.

Of all the challenges a family business has to overcome, business succession is the biggest and most important: only just over half of all businesses succeed in the generational change. There are many reasons for this. On the one hand, the entrepreneur handing over the business must be prepared to deal with the issue, and on the other hand, many difficult and sometimes very personal questions have to be answered. It is about ownership and leadership, about money, power, love and recognition. Legal and tax issues further increase the complexity of business succession.

However, if the topic of succession is tackled at an early stage, it is more of a design task than a threat. Development plans for the next generation, dialogue with the whole family and the creation of structures that are independent of individuals and an advisory board not only help to shape the transition without conflicts, but also to professionalise the family business.

The joint development of an owner strategy and a family constitution based on it is an effective instrument for the joint formation of the owners' will. It contributes to the long-term cohesion of the entrepreneurial family and thus secures the future of the family assets, even if the generational change for the business should take place outside the actual entrepreneurial family.

4. Choose your investors carefully

When looking for investors, don't be guided by costs alone. Check how much experience investors have with companies in your industry. A large network, flexibility in the design of financing instruments and a willingness to provide support are often more value-creating than cheap capital.

The search for a suitable successor is one of the most important tasks for company owners and at the same time, in many cases, the end of their entrepreneurial career. Moreover, it will probably be one of the most emotional matters in professional life. After all, one wants to hand over the life's work, which has been built up with a lot of hard work and sweat, into capable hands that will lead the company successfully into the future.

For most entrepreneurs, the main goal of succession is to ensure the long-term success of the business after the handover. But what kind of successor is best suited for one's own business? The choice between internal and external succession thus often makes it necessary to prioritise the handover goals: Given the current state of the company, is continuity or innovation more central to long-term business success in the near future?

Of course, in a corporate transaction, financial ratios such as profit are a driving factor behind the acquisition efforts of a party interested in buying. However, these key figures are not the only factor influencing and possibly limiting the circle of interested parties. Factors such as location, industry and company size should not be neglected, as they have a significant influence on the number of interested parties as well as their nature.

Sometimes owners and proprietors have certain K.O. criteria for succession in mind, the fundamentals of which are not always entirely obvious. However, it is worthwhile to use K.O. criteria sparingly when drawing up the buyer profile and to show a certain openness.

5. Look for a competent advisor

As a business owner, you have to take many preparatory steps for the sale of the company yourself. Nevertheless, it pays to enlist the help of an experienced advisor at an early stage. He knows the M&A market and has a broad network of investors and potential buyers. He knows when the time is right for a company sale and what price is realistic. But above all, he will help you with professional marketing, drafting contracts and negotiations.

Summary

If sufficient time is available for the preparation phase, the saleability of the company can be increased with targeted measures. In doing so, the entrepreneur should ensure that

• there is as little owner dependency as possible,
• the most important employees remain in the company,
• customer and supplier data are transferable,
• there are no cluster risks as a result of the dependence of business success on a few customers or suppliers,
• the processes are well documented
• the premises are well maintained
• and a modern IT infrastructure is in place.

These positive value drivers, especially together with a suitable marketing concept, can lead to both a higher number of serious succession candidates and a greater willingness to pay. It is therefore worthwhile to start succession planning early enough.

In this situation, an experienced transaction advisor can provide considerable support. He or she accompanies the selling party through the various phases of succession planning - from the company valuation to the search for a buyer to the contract negotiations and the sale of the company. In this way, he or she keeps the entrepreneur's back free during the entire transaction process so that he or she can fully concentrate on the day-to-day business.

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