3 Essential Principles When Selling Your Business For the Highest Price
by Vincent Ehrström, SVP, France
As a previous business owner within the software tech industry I often used to smile when looking at the latest acquisitions in the sector sitting back in awe at some of the valuations.
Many people tend to look at company acquisitions in the news similarly to the way they would view a beauty contest: curious but not involved. That’s OK for outsiders, but not for business owners and entrepreneurs.
Unlike a beauty pageant, the aim in selling your business is not to get everyone to like you and score you a perfect 10. What is essential for an entrepreneur is to be liked by the right handful of potential buyers thereby giving you the choice over who you sell to.
Focus Your Efforts
Potential buyers look at your business with a prioritized set of criteria. They’re interested in your company for complementing or supplementing theirs with the sole objective of making it easier and faster to achieve their goals. They might need your technology or your customer base or your brand or your distribution; probably at least a couple of those. Although they may like all the good that your company can bring, only a few of your business’ strengths are viewed as essential for achieving their business goals and justify their bidding.
Don't Leave it Too Long
Entrepreneurs always have a vision for their company and often have the desire to sell it sooner or later for a “dream price”. They build an “ideal” model of what the company should be before they will start the sale process: achieving revenues of X, EBITDA of Y, having the sexiest leading edge technology and Z thousands of customers across the globe. They naturally think that only when their vision becomes reality they can find a buyer willing to pay the kind of money they’ve dreamt of. In a way, without realizing it, they behave like if they’re preparing their company for a beauty contest … and bet their hard-earned equity big time.
I’m not disputing the fact that some exceptional entrepreneurs manage to create and execute a plan in which everything falls into place in a timely fashion. Those stars manage to trade their business at exceptional valuation levels. Good on them and on us (it’s inspirational to all entrepreneurs). But I believe that overall, most companies will struggle for far too long before they reach a perfect 10 on all possible criteria, if they ever do. Entrepreneurs who take that route risk reducing their equity value working on too many fronts whilst missing the window of opportunity to sell and get the money they dreamt of and possibly more, earlier.
Consider External Support
It’s very difficult for entrepreneurs to make the call by themselves to judge what is truly valuable in the potential buyers’ eyes and what needs prioritising. Non-executive board members can and should help, but working with an external party with industry and market knowledge can be extremely valuable. This is why Boss Equity has built a team of experienced business executives with a bias towards market knowledge and management experience rather than simply finance and accounting. Using tools like the EVA (Equity Value Accelerator), Boss Equity can assist entrepreneurs assess their key strengths and sharpen them in generating greater equity value.
The goal of every entrepreneur in the tech sector is to be ready for the sale of a lifetime, not a beauty contest. And to start getting there you could ask yourself those 3 questions:
• Which of our key projects are aimed at making my company different from my competition?
• How would deprioritised/abandoned projects affect the attractiveness of my business in the eyes of a potential acquirer interested in my main differentiator and strength ?
• Is your greatest strength perceived as valuable and hard/long to acquire in your market space?
If you do not readily have the answer to these questions we would be happy to explore the answers with you.
