Realistic Reflection Before Selling Your Business

Tuesday, June 22 2021

Every business has things it does well. We are happy to point to these strengths, describing them as reasons why customers should do business with us. Conversely, we have areas where we are not strong, vulnerabilities that open us up to competition through commoditization, or worst case, threaten our survival.

Business succession can take several forms. Internal succession is transitioning the business to family or current leadership within the company. External acquisition involves an outside buyer with plans to run the business as a standalone entity, fold it into an existing business structure, or another strategic intent.

Internal Transition

When the transition is expected to involve active internal stakeholders, it is likely that the next leaders have already ‘drunk the Kool-Aid’ and buy into beliefs about your strengths, real or imagined. They may also have opinions on weaknesses that might be accurate, or they may be based on misunderstanding and ignorance. Their ability to be clear and objective is influenced by their emotional ties to the company as well as their day-to-day involvement and experience.

External Transition

If the expected transition will be to an external party, objectivity is likely to be higher when assessing the strengths and weaknesses of a business. First, they may be assessing multiple opportunities, so they are looking at comparative data. In addition, experience is a great teacher that prospective buyers are likely to use to advantage. Ultimately, this is good for the current business owner since any strengths can be identified and leveraged while weaknesses will be brought into the open. If significant weaknesses scuttle the deal, owners achieve a clearer understanding of what needs fixing.

A few common areas to consider before the transition:

  • Is revenue growing over time and profitable?
  • Is a meaningful amount of your revenue recurring?
  • Do you have a differentiated business offering?
  • Are you able to find and keep quality employees?
  • Are your employees highly engaged?
  • What is your market reputation?

Like so many aspects of business, succession is a marathon not a sprint. We need to set aside emotion and look objectively in order to identify our strengths and weaknesses if we are to maximize value and increase the likelihood of a successful transition. It takes time to put the pieces in place. Start now.