Whether you’ve sold multiple businesses or you’re a first-time seller, initiating and navigating the sale of a business can be a complex undertaking. Small business owners want to be sure they’ve received top dollar for the business they’ve built, yet common misconceptions may be preventing them from getting it. Below, we examine four possible misconceptions and explain how you can work toward obtaining maximum value in the sale of your business.
Misconception No. 1: Only large businesses should engage with investment bankers.
Investment bankers are a valuable resource for business owners who wish to sell. Not only can they provide crucial financial insights for sellers, but they can also assist both sellers and buyers as they navigate the intricacies of a merger or acquisition.
Investment bankers often dip into their established networks to connect sellers with potential buyers. For example, some bankers we work with will show smaller businesses to more than 500 private equity firms. Broadening the audience can increase the odds of finding the right match and capturing the most value in the sale.
Some small business owners mistakenly believe investment bankers will only engage with companies bringing in $10 million or more in annual revenue. Yet many investment banks specialize in working with businesses whose earnings fall into the low seven figures.
We believe the key is finding an investment banker who specializes in working with businesses of your size. We have unique expertise in working with our clients to select an appropriate investment banker to take their business to market.
Misconception No. 2: Selling isn’t the only option.
Selling your business outright is not the only option available to business owners. For example, a recapitalization (or recap) involves restructuring a company’s capital, often by introducing new equity or debt into the business. We frequently see owners take advantage of this option if they are interested in taking some chips off the table to diversify their balance sheet. This can also result in adding a partner with additional resources and personnel to help grow the business.
Still, it may not always be the best choice, and a seller may choose to pursue an outright sale instead. Your financial advisor or investment banker can assist you with exploring your options and making the right choice for yourself and the future of your business.
Misconception No. 3: You’ll always get the most money from strategic buyers.
Strategic buyers come in an array of presentations. Some may be businesses seeking to absorb — or even eliminate — competitors. Others may be interested in expanding market share, entering new markets, or implementing a new vertical to complement their existing products or services.
However, while strategic buyers may be willing to pay a premium for the synergies they can achieve through a purchase, they’re not always the highest bidders. As the saying goes, — an asset is worth what someone is willing to pay for it – and without soliciting offers from many potential buyers, it can be difficult to know the true value of your business.
Other potential buyers, like private equity firms, are frequently willing to pay more (and usually have deeper pockets). Even with the change in the lending landscape, we are seeing transactions move forward. And there are countless private equity firms in many different sectors – there may be one that is specifically looking for a business in your area of specialty. Again, your financial advisor or investment banker can help you evaluate all offers and maximize your company’s value.
Misconception No. 4: I won’t make enough after paying taxes if I sell.
This is a fairly common misconception for owners. Of course, the tax impact can be significant, but there are various pre-transaction tax planning strategies worth consideration. We have worked with many clients to provide assistance with complex tax planning both prior to and after a sale. It can be helpful to utilize your financial advisor’s network and expertise to ensure that you are being very careful in this regard – and this is where experience in business sales matters.
It’s rarely too early for business owners to start thinking about a potential sale, even if it’s still years away. Careful planning and a realistic mindset can be crucial to navigating the complexities of selling a business. Partnering with a trusted financial advisor as early as possible lets you make informed decisions about a sale and can help you identify the right buyer at the right time.
Are you interested in learning more about your options for selling your business? Contact us today.
SignatureFD is a financial advising firm headquartered in Atlanta, Georgia. We believe in helping our clients achieve wealth beyond money. Our team of investment, financial planning, and tax experts are committed to proactively helping clients take control of their financial lives and achieve their goals.
Isabel Berbert is a partner and wealth advisor at SignatureFD. She helps entrepreneurs and small business owners gain clarity and make confident decisions through investment management, estate planning, tax planning, and other areas of financial focus so they can concentrate on what they do best — running their businesses.