This document discusses key considerations for selling a business, including timing, buyers, price, and dangers. Regarding timing, there is no perfect time to sell and it depends more on when the right buyer is interested rather than market or business conditions. Potential buyers are unlikely to be customers, competitors, or large corporations; the most likely buyers purchase businesses 5-20x the seller's revenue. An accurate valuation requires considering more than 50 potential buyers and negotiating terms, not just price. Employees and customers rarely leave after a sale contrary to common myths, while the biggest post-sale danger may be unfulfilling retirement rather than business fallout.
2. A Look Behind the Curtain
Timing
Buyers
Price
Dangers
3. Timing
Q: What is the best time to sell your business?
a) When the market is peaking
b) When my sales and profit are peaking
c) When I’m big enough
d) I have no idea
5. Timing
Timing the market or
your business peak
is very difficult.
2008 market fall?
18 months early?
6. Timing
Timing is determined
by the Buyers, not
Sellers.
There is no way to
know when the
right buyer has the
right fit, right deal
at the right time for
you.
9. Buyers
Q: Who is the right buyer for my business?
a) One of the largest industry players
b) One of my customers
c) One of my competitors
d) The icons (Google, Microsoft, Lockheed, etc)
e) I have no idea
11. Buyers
Customers and competitors make the most unlikely
and lowest value buyers
• There is a good reason they are a customer…
• Competitors very often have to much overlap to
generate full value
12. Buyers
The very big often do not bother with the very small.
• Most likely buyer is 5x – 20x your current revenue
• Often completely unexpected
• Buyers priorities shift unpredictably…
14. Buyers – Part 2
Q: How many potential buyers do I need to talk to be
sure I have the best deal (or any deal at all)?
a) < 5
b) < 50
c) More than 50
d) I have no idea
17. Buyers - Part 2
Remember…
You are selling a illiquid asset into an illiquid market
There are probably 1 – 5 buyers for every small business
It takes 2.5 LOI’s for a deal to actually close
18. Price
Q: Your golf buddy tells you a story about a friend who sold
his business for $100 million, what was the real price?
a) More
b) Less
c) Much Less
d) Even less than that
20. Price
Your price, my terms:
So, you got a $20 million* valuation…
* 10% cash, 10% stock, 80% earn out
* 75% must be in my private company stock
* Investors get an 8 to 1 liquidation preference
* Conversion price does not prevent dilution
Without terms, price means nothing
21. Price – Part 2
Q: What’s the best way to know the true value of my
business?
a) Revenue or profit multiple against public multiples
b) What other companies like mine sold for
c) Valuation from accountant, ibanker, etc
d) Throw a dart
23. Price – Part 2
Other answers are reasonable if
you are comfortable with being
off by 50%
Small businesses rarely have good
comparables
Buyers do not go to valuation
school
Terms are as important as price
24. Price – Part 3
Q: If you hire an investment banker or business
broker or accountant or valuation expert, should
you believe his valuation?
a) No
b) No
26. Price – Part 3
Brokers & ibankers can’t help but
pitch a high valuation
Accountants & valuation pros
aren’t as conflicted but still can’t
beat the dart
Remember, your business is worth
what a buyer will pay for it. Trick is
to find the best buyer with the best
deal
27. Dangers
Q: What’s the biggest danger in selling my firm?
a) Customers will find out and bolt
b) Employees will find out and bolt
c) My ex-spouse will find out and want their cut
d) None of the above
29. Dangers
Employees and customers rarely
bolt- it’s an urban myth
Your competitors are already tellilng
your customers and employees your
business selling (failing or bankrupt)
anyway
Biggest danger is you won’t like
retirement as much as you thought
and go right back to building the
same business you sold
On the ex-spouse, we can’t give legal
advice
30. Selling Your business – A Look Behind the Curtain
Todd Taskey, Principal
Stonecroft Capital, LLC
7625 Wisconsin Ave #300
Bethesda, Maryland 20814
240-482-3590