The thought of selling a business can be highly emotional. This is especially true for owners or executives in middle-market businesses who often totally identify with the business. Nonetheless, there often comes a time when an exit makes sense for all parties. Owners should understand those situations and be prepared for them to optimize the value of a company without compromising its financial health.
With that in mind, here are four signs it might be time to sell, as well as CFO insights for the next steps:
- Strategic Opportunity:If a business has positioned itself correctly and established a strong and leading footprint in its industry, finding/attracting strategic buyers who want to acquire the business is likely. Once the terms of that strategic deal are settled, the CFO and executive team should be exerting all efforts to get that deal closed, making sure all of the deal advisers are on the same page to meet all deadlines, answer all requests clearly and promptly, and not slow things down.
- Competitive Adjacency: Although fiercely pushing to beat competitors is common, at some point, industry consolidation may occur, and an attractive opportunity to sell to a competitor might be found. These opportunities can present complications for deal completion, with egos, culture clashes and hard feelings that can powerfully influence results. The CFO and management team need to be the “adults in the room” by remaining calm and alerting leadership when emotions are getting in the way of deal completion.
- Demographics:Over $10 trillion of net worth in over 12 million businesses will change hands in the US over the next decade as aging baby boomers exit their businesses. This is a once-in-a-lifetime deal for most business owners. Do not wait until the year of an expected exit to prepare for the deal. Getting financial reporting, forecasts and key data in order well in advance is critical. Bring in outside help, particularly in the CFO area, if the in-house talent has not been through a transaction before. The best approach is to always run a business like it is about to be for sale.
- Financial struggles:Unfortunately, it happens. Markets change, the economy has cycles, and sometimes there is self-inflicted damage. An exit may be the best outcome if a downturn is concluded not to be temporary. Getting a good exit when the numbers are soft is tough and requires focus on deriving the best value possible. Having the right team in place, particularly in finance, and coordinating deal strategy regularly with that team is imperative. Being honest and forthright with financial data being shared with buyers is a must, but how it is presented can matter a lot. Having a savvy CFO and FP&A professional working on your deal can make a big difference.
In all of these scenarios, business performance during an exit is critical. This is the wrong time to have a sales slump, higher customer attrition, accounting mistakes, key employee exits, etc. Surprises or declines in business performance can result in losing the deal or taking a painful haircut.
A seasoned strategic fractional CFO is an incredible resource for assessing available options, creating a plan, and preparing to sell. This is not the right time for a finance team to “learn it as they go” or to consult with AI on the best next steps. Preserving value in a deal or, in some cases, preserving the deal may hinge on having the right financial leadership in place, even if it is temporary leadership.
Lyle Newkirk is a CFO Partner with SeatonHill Partners, which provides organizations’ financial leadership with a strategic and operational focus by placing elite CFO talent to challenge the business and contribute to operational decisions to achieve results. Lyle has over 35 years of experience in CFO and executive finance roles. He has worked with public and private companies based in the U.S. and internationally, where he developed strategies to achieve significant top-line revenue growth and helped to facilitate various successful acquisitions and strategic exits, including three exits to Fortune 500 companies.
