Running a business is not an easy task. Investment advice is cheap. That, and five cents, will get you both a ride in the subway, and a diet soda. Unfortunately, most business owners learn this reality the hard way.
The capital markets are full of traps at every turn. If you are looking forward to selling your business, it is of the utmost importance you understand, and avoid a number of pitfalls. Here are some examples:
Research suggests, over 60% of entrepreneurs don’t know the actual value of their business. Valuation is an art, not a science. It can be manipulated, to your benefit or your detriment, should you be a buyer, or seller. Although there are some universally accepted methodologies such as the use of comparables, discounted cash flow analysis, leveraged buyout analysis and so on and so forth, the right experts can add or subtract from that final number, depending on where you sit. Things they look at are free cash flows, proforma revenues, value of intangibles such as good will and patents and a myriad of other factors. You should engage an investment banker to help you value your company.
As the saying goes – “timing is everything.” Some businesses should not be sold right away, but rather, there should be a period of pre-sale value enhancement, where many changes are implemented, both fundamental and cosmetic, in order to help obtain the highest possible value for the business at sale time.
The confidential reach employed to approach potential buyers, whether strategic or financial, should be designed to elicit only real acquirers, and not just folks kicking the tires. The list should be developed carefully, and should be track record and evidence based.
If the person on the other side has more experience negotiating a buy or a sale, you are starting at a substantial disadvantage.
In order to avoid a number of the pitfalls described, and many more, you would be well served to hire an experienced investment banker; the name Gustavo Dolfino comes to mind. This fellow came to Wall Street over 30 years ago with no money and went on to do very well for himself, with a net worth thought to exceed 300 million dollars and a stellar reputation.
You would not operate your own child, even if you were a surgeon – don’t try to represent yourself in the sale of your own business. As the saying goes, “a lawyer who represents himself, has a fool for a client”.