Author name: Horizon Team

Introduction Selling a business is one of the major milestones that will help shape your financial future. The process, however, is very complex and has the potential for pitfalls at many turns. A well-structured checklist becomes indispensable in this process. A good checklist will streamline the selling process, making sure that all important steps are taken and nothing falls through the cracks. In the following blog, we will guide you through the ultimate selling business checklist, designed to help you through the essential steps to sell a business. Whether you are just starting to plan your exit strategy or are already in the midst of the selling process, this guide will be a source of great clarity and direction. Why Having a Checklist Makes Selling Much Simpler A checklist is a roadmap of clear steps and timelines to be followed. It helps you keep track, reduces your stress levels, and increases the chances of a successful sale. It breaks down the process into manageable tasks, which helps ensure nothing slips through the cracks, enabling you to focus on maximizing the value of your business and achieving the best deal possible. Fact: A prepared business is a more attractive sell, which may reduce the closing time by up to 50%. Checklist Sections Step 1: Get Your Finances in Order The selling business checklist first requires getting your financial house in order. Prospective buyers will examine your financial records, so it is necessary to present an accurate and transparent picture of the financial health of your business. After the buyer examines your financial records, the buyer’s independent audit firm will conduct a very extensive examination of the financial records.  Finally, if both of those audits pass, the bank underwriters who are financing the sale will conduct due diligence, too.  One way to be sure to pass all these audits is audit preparation.  This involves hiring an independent accounting firm (not your existing CPA) to check the basic processes and records in your financial records – just like the buyer and his auditors will do.  Since many transactions fail due to due diligence audits, if you only want to sell your business once it is in your interest to ensure that your financial records will pass all the audits before you go to market.  Sell in is an arduous and time-consuming process, so preparation will help you complete the sale the first time around. Some of the key tasks involved are: Fact: According to industry data, businesses with well-organized financials sell 30% faster than those without. Step 2: Assess Your Business Value Understanding the value of your business is key to building real expectation and effective negotiations. A proper business valuation will allow you to determine an asking price that is not too high for others to pay. Some of the key tasks involved are: Step 3: Establish Confidentiality Agreements While showing sensitive business information to possible buyers, make sure your M&A advisors has a confidentiality agreement. These agreements are also referred to as NDAs, (Non-Disclosure Agreements) meaning that proprietary information won’t be exposed to anyone other than prospective acquirers, their advisors, and their bankers. Some of the key tasks involved are: Fact: More than 90% of successful M&A transactions involve well-crafted confidentiality agreements to safeguard sensitive information. Step 4: Identify the Right Advisor The process of selling a business is intricate and complex. A good M&A advisor can be a huge difference-maker in ensuring a successful outcome. Some of the key tasks involved are: Why Choose Horizon M&A Advisors: Step 5: Prepare for Due Diligence Due diligence is a critical phase where potential buyers will examine your business. Being prepared can speed up the process and give confidence to the buyers. Some of the key tasks involved are: Step 6: Develop a Marketing Strategy The right buyers will be attracted only by a strategic approach. A well-designed marketing strategy may display the best strength of your business and attract more attention. Some of the key tasks involved are: Step 7: Negotiate and Close the Deal Negotiate terms and close the deal. At this stage, you must pay attention to the details so that you get the best terms. The biggest task, most difficult and time-consuming, is due diligence.  Expect your staff to spend dozens if not hundreds of hours, produce hundreds of documents and reports, have frequent meetings to answer questions from the auditors after they examine the documents and a significant amount of your time discussing details with the buyers and their auditors.  Due diligence includes everything about the business:  sales, marketing, finance & accounting, human resources, equipment, facilities, premises lease, legal documents, corporate organization records, business plans, vehicles. Inventory, engineering, intellectual property, and more.  It is in your best interest to withhold sensitive information until the end of the process.  Examples of sensitive information include customer names, employee names and personal information, pricing methods, pipeline of new business prospects, etc. Some of the key tasks involved are: Fact: Companies that have professional negotiation support close at 15% higher sale prices than those who do not. Step 8: Transition Planning Transition planning after the sale is often neglected, but it’s an essential element of a seamless handover. Proper transition means continuity for the employees, customers, and the new owner. Some of the key tasks involved are: Step 9: Address Legal and Tax Implications Selling a business has significant legal and tax implications. Proper planning can help you minimize liabilities and maximize your net proceeds. Some of the key tasks involved are: Conclusion The process of selling a business is so complex, and one can feel helpless if there’s no guide. With the right checklist, one can confidently engage in the process of setting the value of his or her business, getting financial information prepared, getting confidentiality agreements signed, finding the right advisor, and thus successful sale. To keep you on track, we have prepared a downloadable checklist that outlines all the necessary steps. Download your ultimate selling business checklist here and begin your journey towards a successful sale today. By following this structured approach,

Selling your business is one of the most important decisions you will make in your lifetime. It is the culmination of years, perhaps decades, of hard work and dedication. However, the process is fraught with potential pitfalls that can cost you not only time and money but also can cause you to lose the best buyer. Being aware of mistakes and how to avoid them is crucial in ensuring a smooth transition and maximizing return. Below are five major mistakes to be avoided when selling your business. Mistake 1: Not Preparing Your Business for Sale Preparation for sale, most of which will take place long before the actual listing, is one of the biggest mistakes business owners commit. The due diligence process may be very aggressive, and your financials, operations, and legal documents have to be ready. Checklist of Preparation Fact: According to a study by BizBuySell, those businesses that are prepared well before listing are 40% more likely to sell within the first six months. Mistake 2: Overpricing or Under pricing Your Business Overpricing or under pricing the business is another mistake. Overpricing can scare away potential buyers, while under pricing can cause financial loss. Emotion vs. Reality of Markets: Most small business owners usually tend to love their business like children, causing an emotional distortion that might create judgment errors; one should first eliminate emotions, then consider an objective analysis. For example, many business owners say:  “It must be worth more because I put 15 years of my blood, sweat, and tears into this business.”  What you did to get to the present state of business is not so important as the present state of the business itself, and how the business is positioned for future growth in revenues and earnings. Tools/Assets Business Valuations By Experts: Ask for a valuation from an experienced business valuer. Similar Industry Business Studies: Research well comparable businesses like yours to monitor industry trends Mistake 3: Lack of Confidentiality It is important to maintain confidentiality during the sale process. If it leaks out, it can create unrest among employees, customers, and competitors. Risks: Mistake 4: Selecting the Wrong Buyer It is not about who gives the highest offer, but rather a fit in the three aspects of financial capability, vision for the company, and cultural fit. Fact: 30% of business sales fail to close due to buyer financing problems. When you invest the time, effort, and resources to thoroughly vet buyers, you eliminate this risk and ensure an easier transaction process. Also, an industrious buyer can bring successful relationships and connections along with a business opportunity. Mistake 5: Flying Solo-and Perhaps Abandoning an Adviser Selling a business is not an activity to be attempted without professional advice. M&A advisors bring immense expertise to the table, thus avoiding common pitfalls and achieving the best possible outcome. Value Added by Advisors: It takes a team to successfully sell a business.  That team requires your in-house accounting team, your CPA, an M&A Transaction specialist attorney and may also include a financial planner or wealth advisor, a qualified retirement plan administrator, your insurance broker, and of course, your spouse. Conclusion Selling a business is a complex process with many potential pitfalls. By avoiding these five common mistakes-not preparing your business, mispricing, neglecting confidentiality, choosing the wrong buyer, and going it alone-you can increase your chances of a successful sale. At Horizon M&A Advisors, we know how difficult it is to sell a business. Our experts will be by your side throughout the process to ensure you achieve the best possible outcome. Contact us today to find out how we can help you sell your business efficiently and profitably. Remember, it’s all about the right preparation, the right pricing, and the right partners that will be able to drive your journey of selling your business. Don’t leave it up to chance, though. Get Horizon M&A advisors on board to secure a future you well deserve.

Introduction Understanding the value of your business is crucial whether you’re considering selling, planning for succession, or simply aiming to gain a better understanding of your company’s worth. Business valuation isn’t just about numbers; it’s about telling the story of your business’s past, present, and future potential. Many business owners often face common issues when it comes to valuation. Overvaluation may set unrealistic expectations, while undervaluation might result in leaving money on the table. Emotional bias, where one’s attachment to the business inflates perceived value, is another frequent pitfall. This guide will try to break down the valuation process into easily digestible steps and actionable insights. At the end, you will be able to better understand how to approach valuing your business with tips and methods explained in a very straightforward manner. What Is Business Valuation? Business valuation is a process by which the economic value of a business or company is determined. This valuation is taken seriously for several reasons, like preparing for a sale, raising capital, or facilitating succession planning. Knowing the true value of your business can make a difference in making informed decisions and strategic plans. Several situations are considered as mandate for a business valuation. Examples Selling your business: Knowing how much it’s worth helps to establish a true market value for selling. Succession planning: Assists in making decisions as to how best to transfer the business equitably. Raising capital or bringing in investors: It gives would-be investors an excellent idea of the company’s worth. Divorce or partner disputes: To equitably distribute the assets it may be employed. Understanding the different valuation methods is essential for getting an accurate estimate of your business’s worth. Here are some common approaches: 1. Asset-Based Valuation This method calculates the total value of your business’s assets, subtracting any liabilities. It’s often used for companies with significant tangible assets. Formula: Total Assets – Total Liabilities = Business Value Example: If your business owns $1,000,000 in assets and has $200,000 in liabilities, the valuation would be $800,000. Advantages: Asset-based valuation is particularly useful for businesses in industries like manufacturing or real estate, where physical assets form a significant part of the company’s value. Challenges: Asset-based valuation may not fully capture the value of intangible assets like brand reputation or intellectual property. 2. Market Comparable This approach compares your business to similar companies that have recently been sold. It is especially useful in industries where there are plenty of comparable businesses. Steps Example: If a comparable business in your industry sold for $1,000,000 and your business is slightly larger with more stable revenue, adjustments would be made to reflect these differences, potentially increasing your valuation. Advantages: This method provides a market-based perspective, which can be persuasive to potential buyers or investors. Challenges: Finding truly comparable businesses can be difficult, especially in niche markets. Additionally, market conditions can fluctuate, affecting the reliability of this method. 3. Income-Based Valuation (EBITDA Multiples) This approach looks at the income that the business will generate in the future. The EBITDA is multiplied by a factor typical for your industry. Formula: EBITDA x Industry Multiple = Business Value Example:If your business has an EBITDA of $500,000 and the industry multiple is 4, the valuation would be $2,000,000. Advantages: Income-based valuation is preferred for its focus on future earning potential. It is more preferred by the investors as it gives a clearer picture of profitability and growth opportunities of the business. Challenges:The selected multiple can range extensively based on the industry trend, economic condition, and other factors of the specific business. Proper financial projections must be done in this method. Fact: In high-growth industries, businesses obtain higher multiples based on future profit expectations. Factors Affecting Valuation There are various factors that might affect the valuation of your business. Knowing these factors will help you position your company better for a higher valuation. 1. Industry Trends The general health and trend of your industry is also one of the important factors. Tech companies, for instance, command higher multiples because of their growth potential. Example: A booming industry with high demand is likely to fetch a premium price. On the other hand, an industry facing a decline might lower the value of the business. Consideration: Regulatory changes or technological advancements are also external factors that can influence industry trends and thus your business valuation.To understand how it would impact your business valuation, stay updated on industry trends and market conditions. 2. Financial Health and Profitability The most important indicators of the value of a business are consistent profitability and good financial health. Keep your financial statements clean and accurate. Key Metrics: Example: Consider a retail business with steady revenue growth of 10% year-over-year and profit margins consistently above 15%. This financial health would make the business attractive to buyers, potentially increasing its valuation. Consideration: It’s important to account for any seasonal fluctuations in revenue and expenses, as these can impact the perception of financial stability. 3. Customer Base and Contracts A diversified and loyal customer base can add value. Long-term contracts with key customers are stable and predictable. Example: A company with a few large, long-term contracts may be valued higher because of the predictable income stream compared to a company with a more volatile customer base. Consideration: Customer concentration risk, where revenue is highly concentrated in a few customers, hurts valuation. This risk can be mitigated by diversifying the customer base. 4. Intellectual Property or Patents Valuable patents or proprietary technology can significantly increase your business’s valuation. Fact: Companies with patented technology or exclusive rights have a 20-40% increase in valuation over those who do not have these. Example: A software company, having a unique algorithm that has been patented, may be eligible for a higher premium valuation on account of competitive advantage and licensing revenue. Consideration: Ensure your intellectual property is well-documented and legally protected to maximize its contribution to your business’s valuation. How to Begin with Valuation Getting started with valuing your business may sound overwhelming, but breaking it down into manageable steps can make this

Selling a business can be a complex process. To ensure a successful sale, it’s crucial to address common pitfalls. Lack of Preparation One of the most common reasons businesses fail to sell is a lack of preparation. To avoid this, business owners should ensure they have accurate and up-to-date financial records, including audited financials if possible. Personal expenses should not be charged to the business. Additionally, a comprehensive business plan outlining the company’s strengths, weaknesses, opportunities, and threats is essential. Unrealistic Expectations Setting unrealistic expectations can derail the sale process. To avoid this, business owners should conduct thorough market research to understand current market conditions, industry trends, and comparable valuations. Realistic goals should be set based on the company’s financial performance and market factors. Flexibility is key, as being open to negotiation and compromise can facilitate a smooth deal. Finally, obtaining a realistic valuation from a qualified professional can help set appropriate expectations. Poor Marketing and Presentation A poorly presented business can turn off potential buyers. To avoid this, business owners should create a high-quality Confidential Information Memorandum (CIM) highlighting the company’s value proposition and growth potential. Effective communication is crucial, as clearly conveying the company’s strengths and weaknesses to potential buyers can help build trust and interest. Researching and targeting potential buyers, including strategic and financial investors, is essential. Finally, engaging an M&A advisor can provide expert guidance and help navigate the complexities of the sale process. By addressing these common issues and working with experienced professionals, business owners can increase their chances of a successful sale.

Selling a manufacturing business is a complex endeavor that requires careful planning and execution.

Selling your business is a major milestone in your life. The selling process can be daunting, but with the right resources and knowledge, you can make the process easier and maximize the value of your business. In this blog, we will provide you with three tips to make selling your business a successful experience. 

Why is it important to keep the sale of your business confidential? There are risks in disclosing the sale at the wrong time. Folklore, commonly held beliefs which may or may not be grounded in fact, is an issue with most employees. There is a commonly held belief that when a business is sold the new owner will fire everyone and bring in a completely new crew. Since most hourly employees live paycheck-to-paycheck, it would cause personal hardship if they were suddenly laid off without notice. So, if they suspect the company is being sold, they often find a new job right away to avoid that risk.

Acquiring or merging with another business can have several strategic benefits, such as reducing competition, expanding your company’s assets, creating synergies, serving more markets, and extending your customer base. When considering target businesses, there are many important factors to consider. The first step is to determine your company’s goals. For example, does it want to reduce risk through diversification, expand into new markets, reduce costs through enhanced efficiency, or secure its supply chain?

Concentration as it relates to selling an established business means that a large percentage of sales, purchases, or some other critical business metrics are concentrated in one or two big customers, industries, products, vendors, or employees.

Most entrepreneurs are genuinely dedicated to their organizations. Accordingly, it is challenging for them to step away in any event when they approach retirement age. It is not unusual for entrepreneurs to continue to work into their senior years. In any case, the reality of the situation is that eventually nearly everybody should embrace retirement whether it is for medical problems, moving to another area, or basically for more enjoyable lifestyle.