Selling a $20 Million Business

Issues related to selling a larger privately owned business:

Buyers will be more sophisticated

Selling a $20 Million Business is a lot different than selling a $2 or $3 million business. The buyer of a $2 or $3 million business is likely to be an individual buyer or a small, privately owned business. The buyer of a $20 Million Business is more likely to be a larger corporation or a private equity group. The larger buyers will have more levels of managerial sophistication than individual or small corporate buyers. Their deal team will involve more people and be more extensive, and their level of analysis during the preliminary stages will be greater.

What does that mean to the Seller?

That means the Seller needs to be more sophisticated, too. There should be layers of management and not just dependency on the owner(s) to run the day-to-day operations. Not only should each individual manager have integrity, there must also be integrity in the management process as a whole. Each manager needs to know and be able to execute their particular responsibilities. They must all know what the company wants to accomplish in terms of short-term and long-term goals. There needs to be autonomy in management. Each individual department leader should make decisions regarding their areas of responsibility without waiting on confirmation or consent from ownership.

Buyers are looking for a business where the owner has pretty much worked himself or herself out of the business. Has the owner hired and trained the person that can be his/her replacement? Is the owner able to take time off and go away from the business and the business still operate smoothly? Succession of management and having a staff that can run the business without the owner being present every day is important in selling a higher priced business.

Are there detailed and written job descriptions and policies and procedures? Do new employees rely on verbal training or is there written documentation to help them get up to speed quickly? The more things are standardized and in writing, the more valuable the business is to a potential buyer.

Detailed financial records are more important

Even though good financial records are important in any size transaction, the larger the transaction, the more important they are. Selling a $20 Million Business may involve multiple departments and even multiple locations. It’s important to the buyer to see not only the overall financial picture but the financial picture by division, department, location, etc., as well. You need detailed sales records that can be sorted by customer, by product and by location. You should have detailed income and expenses for each department or location. What are your key benchmarks of success? Can you easily define those? Are they easily tracked and analyzed regularly? What summary or dashboard reports do you use?

What are your past capital expenditures and your future capital expenditure requirements? How do you measure return on investment of your capital assets? Is your business capital intensive? Do you include annual Cap X requirements in cash flow analysis?

Is the software you use for operations and accounting adequate and suited for your industry? Is it reliable and does it provide you with all of the information you need to make decisions? Lack of information can kill a deal. Buyers want timely and accurate information. Does your software give you information capabilities for quick response and decision making?

Utilize capable advisors

Another important aspect of selling a larger size transaction is to have capable advisors. Do you have an attorney experienced in transactions? Using a relative that specializes in family law does not necessarily mean you have adequate representation for Selling a $20 Million Business. Engage an attorney experienced in the transfer of business ownership.

Utilize a CPA experienced in business transactions. Being competent in tax planning and preparation does not automatically make you a competent transaction advisor. Be sure your CPA has transaction experience.

If you utilize a business broker or intermediary, make sure they have the ability to understand the complexities of your business and have the capacity to communicate detailed operations and financial information to multiple levels of a sophisticated buyer. Just because someone sells real estate and businesses does not make them capable of Selling a $20 Million Business. Check on the background and experience of the broker and make sure they have operations or finance experience before you sign a listing agreement with a business broker. An experienced broker will know SBA lenders, attorneys, environmental engineers and other professionals they can refer you or the buyer to at the appropriate time. Utilize their knowledge and experience.

Summary

Selling a $20 Million Business is complicated. A lot of moving pieces have to fall in place in order for the transaction to reach a successful closing. The more detail you have and the more you prepare in advance, the more it will benefit you. Don’t hesitate to utilize professionals that can assist you. The transfer of business ownership is complex, but once a business successfully transfers, you’ve participated in cashing out your equity, continuing your legacy, and keeping people employed.

Greg DeFoor and Tim Greene are business brokers with DeFoor Business Services, Inc. in Atlanta, Georgia. They specialize in representing small and middle market businesses for sale.