It sounds like a dream scenario: A potential buyer sees opportunity and value in your business and presents you with an offer to buy what you’ve built.
These days, businesses across industries are fielding unsolicited offers with increasing frequency. And while these situations may yield significant upside for sellers, they are far from ideal for owners.
If you are a business owner, here are a few steps to take before considering a direct approach from a buyer looking to acquire your business.
Don't Go It Alone: Expert Advisors Are Key
Oftentimes, sellers are surprised by the valuation a buyer may place on their business. In addition, they may struggle with understanding the details around structure, including reasonable expectations regarding how much of the offering price is cash versus a seller note or an earnout, which would be contingent upon performance going forward. Additionally, sellers may underestimate the complexities of due diligence and may even struggle with completing the diligence phase of the transaction while also shouldering the responsibility of continuing to manage the day-to-day operations of the business.
For these reasons and more, business owners need to have an experienced exit planning team in place before accepting an offer from a buyer. Your team may include a Mergers & Acquisitions (M&A) advisor, an attorney, chief financial officer (CFO), and wealth manager. Together, they can help you navigate the process of analyzing incoming offers and ensure you get the most possible value for your business. It’s a bonus if your advisors have additional exit planning education or certifications, like the CEPA credentials from the Exit Planning Institute.
Tap an experienced financial expert to understand the value of your business
As a business owner, you may not know the value of your business when someone comes looking to buy. That becomes an issue in both buyer scenarios:
- When the buyer submits an offer that is below market value. You may assume, rightly or wrongly, that there is no other competition to buy the business at that time. With no competing offers, you may feel you have no leverage to seek a higher purchase price or more favorable terms.
- When the buyer intentionally submits an offer at or near top of market, with the hope of enticing you into action. Don’t assume this is what you will actually receive. These offers contain language that they are “subject to normal due diligence.” It is during the long and arduous due diligence process that the buyer will identify any and all reasons to “discount the offer”. But, if you have spent the time and effort up front, before the unsolicited offer arrives, to prepare your business to be ‘ready and attractive’ from the eyes of a potential buyer, you and your team will have the grounds and confidence to withstand the process and eliminate many reasons for discounts.
This is where having the insight of a financial expert, specifically a chief financial officer, can be critical. A CFO can help you gain an in-depth understanding of the value of your business now as well as its future potential, which can position you well for negotiating with one buyer or many. Having exit planning experts on your advisory team not only helps you navigate a potential sale of your business but also keeps it on track for building sustainable, transferable business value.
Ask for help
The key takeaway: It takes a village to facilitate a successful and profitable exit. With a deal team firmly in place, business owners will have the confidence to properly evaluate any direct solicitations to buy their company. Further, when the due diligence process begins, with a quality of earnings assessment, working capital analysis, insurance, and environmental requests, etc., sellers can rely on their advisory team to help them navigate any complex legal issues or intricacies of due diligence that will help preserve the original offer price agreed upon and ensure a successful end to the transaction.
At FocusCFO, many of our fractional CFOs also serve as embedded CEPAs (Certified Exit Planning Advisors), and we work closely with our clients to help them build value in their businesses and position them for success in the exit planning process. Our CFOs take the time to understand our clients’ businesses at a deep and intricate level, and the end result allows our clients to pursue profitable exits when the time is right.
Discover two real client stories of unsolicited offers that turned into successful exits
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With their award-winning spirits, it's no surprise that the team at Watershed Distillery received an unsolicited offer for their business. Thanks to the work they had been doing with their Fractional CFO, they were ready to make the most of this opportunity. Watch Now. |
When this multi-generation family business received an unsolicited offer for their business, it opened up the conversation for how - and when - they wanted to exit. They pivoted from growth mode to deal mode, finding a solution that worked for all stakeholders. Read Now. |
Even if you're not actively planning an exit, having an exit-ready advisory team can be invaluable when an unsolicited offer arises.
Want to learn more about how we work hand-in-hand with business owners to build value in their businesses before and during exits? Schedule a consult today.
