You Got an Offer - Now What

By J. Tyler Thompson, Financial Advisor, CFP®, CEPA®, AAMS®, WMS®

Successful entrepreneurs and business owners often get unsolicited offers to sell, and the velocity of acquisition and divestitures has accelerated in recent months thanks to cheap capital chasing higher yields.

Suppose you get an offer to sell your business. Now what?

It’s vital to have a thoughtful and disciplined process in place to analyze the terms of the offer, consider how it might fit into your long-term financial plan, and ultimately decide whether this is the best path for you, your family and your business.

Here are 7 key steps to take if you get an offer to sell.

1. Meet with your wealth manager

This should be your first call anytime an offer comes over the transom, whether it was unsolicited or expected. Your Certified Financial Planner’s entire job is to look out for your personal wealth creation goals and keep you on track to meet them. They can also help you understand the implications of a possible sale on your net worth, your family’s financial future, generational wealth creation, retirement plans and whether it will help you achieve the lifestyle and financial goals you wish to have. Your wealth manager can also help you begin to understand the tax implications and mitigation strategies, as well as any estate planning changes that should be taken into account.

Your wealth management team can help introduce an Investment Bank and start the process of valuing your business to help you determine whether the offer is in the ballpark as a starting point for negotiations, analyze comparable deals and multiples to get a handle on market trends, and make specific recommendations to enhance the value of the business ahead of a sale.

2. Assemble an exit planning team

Savvy business owners should already have an exit planning team in place as part of their long-term strategy. The team should include professionals with unique experience and expertise in their role, such as: a Certified Exit Planning Advisor, a Certified Financial Planner who serves as the quarterback and strategist, an investment banker, an M&A attorney, a CPA, and an estate planning attorney.

3. Understand the position of other stakeholders

If other family members or co-owners are also involved in the business, make sure there is high-level alignment on whether all the major stakeholders are open to the idea of a sale.

4. Get your company’s financial house in order

Are your profit and loss statements, accounting ledgers, tax filings, historical earnings reports and other financial books in order? Could they be audited or examined by a potential buyer right now? If not, prioritize getting your financial house in order so it doesn’t slow down negotiations or erode trust and confidence with the buyer. There are certain PE firms that companies can hire to come in and help square them away ahead of a sell.

5. Consider other buyers

Is this buyer truly the best fit for your company? While they may hold all the cards and have first-mover advantage, it’s important to canvass the universe of other buyers and work with your investment banker to consider other potential buyers or alternative strategies. A controlled auction or formal sale process would almost certainly deliver a better premium by attracting more suitors.

6. Look at the alternatives

If your business simply needs more capital and that’s the primary value you see in the sale, explore alternatives like a recapitalization of the debt or capital stake, bank loans, asset-based lending, a carve-out of a portion of the business, or a spinoff and retain some assets or operations of your business. Maybe the best course of action is for you to buy their company. Exhaustively consider all the possibilities before entering into serious talks with a buyer, and be willing to walk away if your terms aren’t met.

7. Don’t get distracted

An offer to sell and all the work that goes into properly considering a proposal can be a massive distraction. Don’t get sidetracked and take your eye off the ball and let your business suffer. Delegate important projects and some routine day-to-day decision making to your trusted lieutenants, but keep your head in the game on major decisions or strategic moves that need your best work.

Following these steps can help you consider offers with a more strategic long-term mindset so you can make a more informed decision on whether a sale is part of your financial plan.

Any opinions are those of J Tyler Thompson and Capitas Advisory Group and not necessarily those of RJA or Raymond James. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected