150+ Entrepreneurs share their Best Advice on Selling a Company

We asked over 150 entrepreneurs to give us their best advice to those considering selling their businesses. We also asked over 100+ Investment Bankers and Private Equity firms, and they shared their best advice about what business owners should know before selling – and the critical steps and details most entrepreneurs might be missing. Here is what they had to share:

1. Understand your WHY for Selling

Selling a company is a major goal for many entrepreneurs, but some business owners aren’t asking an important question: “Why do I want to sell my company?” The reason might be fatigue or burnout from running the business, or the owner might simply be ready for a new venture. One entrepreneur explains that:

“You need to know if the number one reason is to get completely out, or if you’re doing this to solve a business problem so that you can stay in business.”

The answer to this question will change important aspects of the deal. For example, if you’re burned out, you might not want to stay on after the sale. And if staying on after the sale is an important term of a potential agreement – this might stall the deal.

Another entrepreneur explains there are many reasons to sell a business, and some of those reasons are more personal. It’s important to understand those reasons and how they factor into the big picture of the sale. “Be sure to really understand the personal reasons for selling,” explains the entrepreneur. Otherwise the difficult process of trying to sell will blow-up and impact you and everyone involved.

Investment Bankers agree with the entrepreneurs on this point and suggest that having a reason isn’t enough – you must have a good reason to sell. Before we work with an entrepreneur, we know they need to “have a good reason for wanting to sell, and a proper evaluation done.”

Understanding the underlying motivations for the sale of your business can help you create a plan that considers those motives and helps you reach your goals.

2. Prepare for the sale BEFORE you Plan to Exit

Certainly a top goal for many entrepreneurs is selling their business and collecting a big payout for years of hard work. Many business owners, however, aren’t able to sell when they want to because they aren’t fully prepared for the exit. According to Forbes magazine, about 4.5 million firms with a combined business value of $10 trillion will make this transition over the next 10 years, but it’s estimated that only 20 to 30 percent of businesses that go to market end up selling.

For starters, understanding what makes a valuation higher and planning in advance to can significantly increase the purchase price of a business.Another entrepreneur explained that it’s critical to “do the things that increase valuation before you go to market.

One research study found that two-thirds of the entrepreneurs surveyed said that getting a high value for their business to fund retirement or other business interests was a top goal. But less than 40 percent have had a formal valuation conducted in the last three years, and 65 percent have never had their financial statements audited.

One entrepreneur says that it’s important to “understand the value of what someone is willing to pay for your company. That may or may not be in line with your expectations of what your company is worth.”

Many business owners are surprised when the valuation comes in lower than expected. But when you understand what creates value in a company, you can make the right changes before the sale to increase the value.

It’s also critical to get your company ready to sell by looking at the financials. For example, you may want to audit the financials and ensure the right technology and a strong executive team are in place. Entrepreneurs routinely pointed out in the survey that it’s important to “make sure your books are in order.”

It takes more time than you may think…

Entrepreneurs, Investment Bankers and Private Equity firms all agree that timing is critical in the sale of a business. Many of the entrepreneurs surveyed focused on business owners needing to start working on the sale much sooner than expected. They explained that:

“It takes a lot of time – up to one year”

“Start planning 12-24 months in advance, if not longer.”

“The earlier you plan, the better your result.”

“Plan in advance. An effective process takes at least six months, and you generally need to plan to stick around two to three years to attract the widest range of suitors.”

Investment Bankers suggest an even longer planning period of two to three years in advance of the sale. By starting the planning process early, a business owner can understand the current value of a company and make adjustments to multiply that value. Planning early can also help with getting on the radar of potential buyers, including strategic buyers. “You need to get on their radar and sell when you’re ready – not when it’s required,” explains one entrepreneur.

3. Lean on your NETWORK and find Support

There are many important factors to consider during the sale of a business, and many business owners aren’t getting the advice they need most. One study showed that 80 percent of businesses surveyed hadn’t sought advice about a transition.

Entrepreneurs experienced in the sale of a business suggest that business owners get insight, understanding and tips from people who are experienced in the sale of a business. They also recommend taking a look at your business through a more independent lens than that of mentors, peers or even venture capital board members. This is especially important if there are multiple stakeholders who could potentially have conflicts of interest. As one entrepreneur warned, “Take the advice of your VC board members with a huge grain of salt and get a banker to start advising you. The VCs and founders become misaligned of the incentive at this junction in most cases, and you need an independent lens.”

Surrounding yourself with good advice allows you to better understand the potential for the deal. Who are the potential buyers for your company? How can you do a better job of positioning your company so it appeals to the best possible buyers? And how can you close the sale and secure the terms and the purchase price that you desire? Having a strong network and resources in place can assist with answering these questions.

This is often the most important financial transaction in an entrepreneurs life, so take the time to go through this process right.

4. Create a FAVORABLE Exit Environment

The hard work that the entrepreneur invested during the months and years of planning pays off during negotiations. The business owners have an accurate value of their company, they worked hard to create that value, and they have a group of prospective buyers interested in the purchase of their company. At this point, negotiations become key.

One entrepreneur explained that negotiations are made easier by the work you put in early in the process. “Companies are bought, not sold. Basically, if you build a great company (product, people, finances) – then selling it is easy.”

Negotiations are also made stronger by multiple bidders. One survey respondent says, “Only 10 percent of transactions ever close – have multiple bidders.

Defining the ideal buyer is also key to success, according to Private Equity firms. One PE firm survey respondent suggests that you “ensure there is alignment between the entrepreneur and management team and a private equity firm.” This plays into the valuation. If you have a great idea but clear business outcome for the exit, it can be difficult to command top dollar, according to one equity firm. So think about who you are selling to.

Understanding potential objections to the purchase of your business is also key. Investment Bankers were asked about the most important thing they would tell an entrepreneur wanting to sell, and one replied:

That the buyer has two major fears: they fear that they cannot continue to operate the business, and they fear that the seller is selling because they see a downturn coming. If we resolve those issues up front, we have a much better transaction.

Don’t just Negotiate on Price

Securing a high price is only one part of the deal – the second part is to ensure the terms of the deal are good. The surveyed entrepreneurs recommend that you take your time analyzing options and determining which is best. “Look for the best terms,” one survey respondent suggests, “not just the highest price.”

Key to understanding the terms is knowing what you want to do after the sale closes. One Investment Banker explains: “It’s important to understand what you want to do after the transaction and whether the terms of the deal allow you to accomplish that.

Also critical to negotiations is knowing when to walk away. For example, one survey respondent who sold a distressed company explained, “At what price would you and your team be actually better off walking away and shutting down the company? Often people see any non-zero outcome as ‘not failing,’ but a long earn-out in a culturally mismatched company could have way higher alternative cost of pain.

But Don’t Get Distracted by the Sale Process

In the early stages of seeking an exit, one entrepreneur suggests, “Run your business as if selling wasn’t an option.” The entrepreneur goes on to say, “Then hire the right bankers or partners so you don’t lose focus on running the company.” The right partner can help you take the right steps in preparing for the business sale and keep you from getting distracted, a common problem during the exit process.

5. Have a VISION for your Future

Imagine that you start the planning process early, maximize the valuation of your company, and secure a sales price and terms beyond your expectations. Now what? Understanding what comes next shouldn’t be an afterthought, according to those surveyed. Thinking about this aspect of the sale early is key to a smooth transition. “Selling your baby and not knowing what to do next,” explains one entrepreneur, “can easily lead to depression.

Or as the Harvard Business Review article writes “Congrats on selling your business,” a longtime mentor said the day after I signed the paperwork. “Now get ready for a depression.” (Dealing with the Emotional Fallout of Selling Your Business) Even if you hit the jackpot, the sale of your business is often an identity crisis for business owners.

Decide up front what you are willing and not willing to do after the sale. “Decide if you want to remain hired or not at the start,” recommends one survey respondent. If you do decide that you’re open to working at the company for a pre-set amount of time after the sale, get ready to not be in control any longer.

The hardest part of staying on after the sale is realizing that somebody else will be calling the shots in your business,” explains one entrepreneur. As a result, some business owners take a less active role in the company after the sale, such as working on a consulting basis and not in the day-to-day operations or in a management role.

Conclusion: Entrepreneurs Top 5 Recommendations on Selling a Company

So there you have it, the top things entrepreneurs recommend as you consider selling your business. They are:

1. Understand your WHY for Selling
2. Prepare for the sale BEFORE you Plan to Exit
3. Lean on your NETWORK and find Support
4. Create a FAVORABLE Exit Environment
5. Have a VISION for your Future

Planning the sale of your company includes many variables, but when you take the advice of business owners who have gone through the process and advisors who understand how to maximize the valuation of your company, you can accomplish – and even exceed – the goals that you set for the sale of your business.

Want to learn more? Grab your free copy of the Valuation Playbook and learn the best practices to maximize the value of your business.