Business cycles seem to last about ten years. Out of a typical decade, there will be a couple years of recession (we’re overdue), a few years of boom times and several years that are neither boom nor bust.
It has been a long of time since our last recession but it was memorable. And while we’re overdue for another one (hopefully not so painful this time), in the meantime we’re enjoying a very robust expansion. My clients have a common problem: finding skilled staff to fulfill profitable opportunities that are available to them.
Most of my clients are ‘stay and grow’ types, that is, they aren’t ready to sell yet, mostly since they are too young to retire. But some have been ready to sell. Since most clients have enjoyed several years of good profits, they are able to justify reasonable prices for their businesses. Over the last two years I’ve helped three clients sell their businesses.
One thing that strikes me when I look back at these transactions is how global business has become. Even relatively small, entrepreneurial businesses have a multi-national aspect to them. Here are some examples.
The first is a large income property that sold to a Beijing-based, publicly traded company. Fortunately, English is the language of business and most countries have accounting rules that are quite similar to U.S. accounting rules. In this case, I learned that Chinese accounting is just like American accounting.
Another example is a professional service practice that was my client, merged with a bigger practice. Many industries are consolidating and this was the case here. And while the merged company isn’t multi-national, it does span several states.
The third sale of a client was a small software client. In this case, my client was the U.S. branch of a European company. My client, the parent company and other foreign subsidiaries were all acquired by a U.S.-based multi-national company.
In some deals I help the owner with the process of selling the company but often the owner handles this themselves, with or without the help of an M&A firm. My role in all of these deals typically means heavy involvement in the due diligence process. That means a lot of supplying of financial information and support plus legal documents. The financials usually drive these deals, so there is an emphasis on the numbers. And typically this goes through more than one buyer and extends through and after the closing.
I’ve got a couple of other clients who are weighing their options on whether to sell or not. Of course, once the next recession is upon us, typically the deals stop as everyone wants to see how long and how bad it will be. It is tough to impossible to sell a business during this part of the cycle. Of course, results suffer and the owner has to wait until the next cycle if they want to sell their business for top dollar. But often the wait is for five to seven years. A lot can happen during that time, of course.
My advice? Plan five years to a decade in advance. Start building your business to be attractive to buyers. Build a data vault of information that will be of interest to suitors. Document policies and procedures. Clean up your accounting and get personal transactions out of the business. There are a thousand other things to attend to. If this sounds like a lot of work, it is. But preparing for due diligence is really just the documentation and housekeeping you should do anyway. Preparing for scrutiny by potential buyers will create a business that is more pleasant and profitable to own.
When it comes to selling, don’t be greedy but do get prepared over a multi-year period. Have a window you hope to sell during that is at least five years long. If you haven’t prepared for the current deal cycle, it’s probably too late. Start preparing for the next cycle.
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