Crain’s Cleveland | Your window of opportunity to sell is now: Here’s how to be sure you’re ready

Your window of opportunity to sell is now: Here’s how to be sure you’re ready

Magnifying glass in front of an open newspaper with paper houses. Concept of rent, search, purchase real estate.We are well into 2018, and by now you have read that according to Deloitte’s fifth M&A Trends Report, about 68% of executives at U.S.-headquartered corporations and 76% of leaders at domestic-based private equity firms say deal flow will increase during 2018. In addition, Deloitte states that these leaders believe that both the number of deals and the size of those transactions will increase significantly throughout the year.

This optimism has flowed through to smaller and middle market deals according to Dykema’s 13th annual M&A Outlook Survey.  The survey yielded a number of interesting conclusions including the fact that 70% of the respondents predict that the volume of small deals (under $50 million) will increase during 2018 and that nearly 80% of the respondents expect an increase in M&A activity involving privately-owned businesses. A portion of these privately-owned businesses will result from aging business owners who want to sell.

Not surprisingly, this boom is not expected to last indefinitely, causing some business owners to raise concerns about how long the window to sell a company will remain open.  Some economists are predicting that deal activity will cool as early as 2019 but more likely in 2020-2021. Therefore, now is the time for business owners to maximize value if they are contemplating an exit.  Any business owner who is considering a sale of his or her business should start immediately preparing an exit strategy. Mistakes made during the process of preparing an exit plan can severely impact a company’s value.

As a general matter, business owners should take the viewpoint of a prospective buyer and determine what could stand in the way of a potential sale.  Here are seven key issues to consider when implementing an exit plan.

  • Books and records. A company’s books and records should be up to date and well organized.
  • Financial statements and profitability. A company should have financial statements reviewed or audited by an outside independent accounting firm. Ideally, these financial statements will show a consistent growth in net profit.
  • Major customers or suppliers. Just as important as showing stable revenue with consistent growth, a potential buyer will want to know that the company’s source of revenue is stable as well.  Long-term relationships with existing customers or suppliers should be evidenced by long-term binding contracts that can be easily transferrable to prospective buyer.
  • Key employees. The key management and employees of a company are important assets that a prospective buyer will need to retain to ensure the business continues to grow.  A business owner should enter into employment agreements with these key employees…

[The full article is available on Crain’s Cleveland]

Michele Hoza is a partner in the Business and Mergers & Acquisitions practice groups. She can be reached at 330.258.6462 or [email protected].