The holiday season is often a time to assess company performance during the previous year and set goals for the new year for owners of privately held companies and family owned businesses. The goal of a sale of a business in the new year frequently generates a telephone call or email to IBA, the Pacific Northwest’s premier business brokerage firm serving the “middle market” since 1975, by entrepreneurs seeking knowledgeable, experienced representation from a firm with a reputation for integrity and employing “best practices”. All information shared with IBA is held in strict confidence and 100% of our fees are contingent upon the successful sale of our client’s business.
The motivation behind contacting IBA by a business owner is traditionally either a desire to retire or transition equity in a privately held company into cash. Regardless of the motivation, all our clients desire a sale at the maximum value achievable in the mergers & acquisitions marketplace.
The following are five recommendations from IBA, a company with over 4200 successfully facilitated transactions in its history, for entrepreneurs who are thinking of selling their business in 2023 that want to maximize the sale price for their business:
- 2022 Financial Records – The most important documentation utilized for business valuation and the sale of a business in 2023 will be the 2022 year end income statement & balance sheet (and the associated federal tax return) for companies operating on a calendar year. The more detailed and transparent the documentation the higher the business value will be when assessed by a professional with experience valuing privately held companies, potential buyers, and bankers or investors supporting acquisitions. Discretionary & non-reoccurring expenses should be highlighted and provided to the party appraising the business to insure proper adjusted cash flow calculation. The adjusted cash flow calculation is the foundation of most business valuation models. A $50,000 miscalculation can result in a $150,000 to $350,000 price difference in the middle market depending on the size & industry of a company. In addition, it is recommended that a document trail be assembled to support modifications to cash flow by the business owner for future provision to potential buyers during due diligence while documentation is easily accessible.
- Infrastructure – Business buyers seeking acquisitions at value prices in the mergers & acquisitions marketplace seek to identify infrastructure weaknesses that can be utilized as justification to negotiate lower prices. Entrepreneurs wishing to maximize the sale price of their privately held company should anticipate infrastructure analysis and address issues prior to introduction of the business to the marketplace. Businesses that can be sold “turnkey” with limited need for short term modification sell at premium prices. Infrastructure components that are commonly assessed in transactions include employees; equipment; inventory management systems; customer relations; and standard operating procedures, design, plan, & bid archives, and manuals. Companies where the owner fills an executive management and strategic planning role sell at higher values than companies where the owner is critical to sales or operations. Companies with new and/or well-maintained equipment with no significant CAPEX needs in the short term sell for higher values than companies with deferred maintenance or equipment nearing the end of its useful life. Companies with right sized inventory with appropriate turn rates and inventory management systems sell at a premium over businesses lacking those assets. Companies with a diversified customer base, long term customers with documented transaction histories, reoccurring revenue, and/or long term or “evergreen” contracts sell for a more than ones without those assets. Companies with documented standard operating procedures, design, plan, & bid archives, employee & sales handbooks & training manuals, and equipment maintenance & service records sell at a premium over businesses lacking those assets.
- Street Appeal – In the sale of any product or service, a seller only has one opportunity to make a first impression on a potential customer. In 2023, the first place a business buyer will go to evaluate a business is the Internet. Their analysis will include the company website plus venues such as Google, Bing, LinkedIn, and Yelp, if available. A prudent business seller will evaluate these venues prior to taking a business to market to insure the best possible first impression is made on potential buyers. It is also recommended that a business seller assess or create a personal LinkedIn profile prior to taking a business to market. It is common for business buyers to review a seller’s LinkedIn profile, and vice versa, to gain information about the party on the other side of the table prior to commencing negotiations related to the purchase & sale of a privately held company. A business seller should additionally evaluate the impression their business makes on a first facility tour. No business buyer purchases a company they do not see themselves working at in the future.
- Professional Sales Ability – A business is a sophisticated product with tangible & intangible assets requiring knowledge, experience, and a professional skill set to sell for the maximum possible market value. No direct market comparable exists for any privately held company or family business. Each business is unique in terms of its market identity, revenue, profitability, infrastructure, customer base, and location. Ultimately, the final sale price will come down to the salesperson’s ability to persuasively articulate a sophisticated value proposition to a business buyer that has elements similar to selling an investment opportunity and piece of rare artwork at the same time. Equally important to achieving the maximum possible sale price, is the ability of the salesperson to close the buyer on the purchase and facilitate the transaction from preliminary agreement to closing. No sale is completed until money changes hands. An established business brokerage will have the ability to source the funds necessary for a qualified buyer to complete a desired transaction. As in many problem-solving situations, it is often who you know not what you know that gets the job done. This is commonly the case with funding the acquisitions of privately held companies and family businesses as underwriting policies fluctuate at lending institutions annually and can vary greatly between banks. Many an entrepreneur has mentally & emotionally completed the sale of their business only to be left standing at the altar due to a negotiation being fumbled or the money to complete the transaction not arriving. This situation is a rarity when a professional mergers & acquisitions professional from IBA is engaged.
- Market Creation – The most persuasive, skilled salesperson cannot sell a product or service without a willing & able buyer. Creating a marketplace for a business is a complicated, nuanced process because of two divergent issues. On one level, as with the sale of any product or service, a business seller wants to expose the purchase opportunity to the maximum number of parties. On a second level, most business owners wish to sell their business in an environment of confidentiality where only qualified buyers learn of the sale and customers, employees, and competitors remain “in the dark” regarding the contemplated transaction. Creating this marketplace requires systems, knowledge of the buyers in the marketplace, and the ability to identify & reach potential buyers. Quality business brokerage firms possess this ability and share it with their clients. One element necessary to achieve the highest possible sale price for a business in mergers & acquisitions is the creation of market competition for a privately held company. Few firms in the Pacific Northwest have IBA’s experience & ability creating a competitive marketplace for the sale of privately held companies and family owned businesses.
The marketplace for the sale of privately held companies and family owned businesses was robust in 2022. It is our understanding at IBA that our firm successfully facilitated more “middle market” transactions last year than anyone else in the Pacific Northwest. Many business attorneys, CPA’s, and business bankers can attest that this has consistently been the case regionally since before the start of the present century. We anticipate the same marketplace dynamics will exist for entrepreneurs wishing to sell their businesses in 2023, as a large amount of capital is presently sitting on the sidelines ready for deployment by companies desiring to grow by acquisition, private equity firms, search funds, and high net worth individuals. In addition, it is our belief in the Seattle metropolitan area that executive level layoffs in the tech sector will also increase buyer demand for companies as financially strong people in their 50’s & 60’s problem solve unemployment through business acquisitions. If you are a business owner interested in selling your business this year, we would welcome the opportunity to learn about your business & exit strategy objectives and provide an overview of the services we offer our clients. IBA can be contacted at (425) 454-3052 at our corporate headquarters or at (503) 739-4880 and (509) 907-9406, in our satellite offices in Portland & Spokane. Email inquiries are welcome at firstname.lastname@example.org. All information provided to IBA will be held in strict confidence.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.