Sell your company smart: A step-by-step guide

What are the most important aspects of selling a company?

Selling a company is a life-changing decision for business owners. But what are the key factors to consider to ensure a successful sale?
For many, this step is a difficult decision, as it is a milestone decision in the life of a business owner. We therefore cover the most common reasons for selling an enterprise, briefly describing how such a process takes place. We’ll introduce the key notions linked to the topic of selling a company, provide insight into the competencies of our company, and answer the most frequently asked questions.

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When is it time to sell your company? Common reasons for exit

Building a company is a challenging but rewarding journey. However, many entrepreneurs reach a point where they consider selling. Here are some of the most common reasons:

Lost motivation

This can occur even for successful businesses. Founders may become bored with daily management tasks and yearn for new challenges. Additionally, not having spent enough time with their families over the years, and other personal interests, can lead to regret. If the business is thriving, selling allows founders to pursue other dreams while ensuring the company's continued success.

Market conditions

External factors like economic downturns can negatively impact a company's growth and financial performance. In such situations, it's wise to consider selling while the company still has value.

Time to move on

Building a business takes a lot of effort. Owners may reach a stage where they are unwilling or unable to invest further resources or lack innovative ideas for growth. Selling can free them up for new ventures or a well-deserved retirement.

Planning your exit: a smooth transition

Entrepreneurs should consider an exit strategy even if they don't plan to sell immediately. Having a plan paves the way for a smooth transition and potentially maximises the company's value. This could involve:

• Succession planning: gradually handing over the company to family members, management, or new owners can ensure a smooth transition.
• Financial security: selling provides funds for retirement, travel, or supporting family.
• Professional support: consulting companies like Forvis Mazars can offer valuable assistance in accounting, tax, and legal aspects of the sale process.

By planning ahead, entrepreneurs can ensure a successful exit that benefits them, the company, and future owners.

Selling the company: a 5-step guide

Selling a company involves multiple factors and requires expertise in various areas. In essence, you're selling your ownership stake, resulting in a change of ownership. The new owner will acquire the company's assets and employ the existing workforce.

The 5 pillars of a successful company sale

1. Financial preparation

Once you decide to sell, ensure all financial records are readily available for potential buyers.

Audit vs financial due diligence

Don't confuse an annual audit with financial due diligence. Audits verify financial reports follow specific rules, but they may not address buyer concerns. Due diligence goes deeper, investigating details crucial to potential investors.

2. Company valuation

While due diligence is essential, many owners underestimate the specific requirements of potential buyers. Consider seeking help from a professional consulting firm. This can help identify buyers and navigate negotiations effectively.

Understanding company value

After due diligence, a formula like this can help determine your company's value:

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) + Net Current Asset Adjustments - Net Debt = Amount Paid to Seller

• "Normalized" EBITDA

Company value is often based on sustainable profitability, usually the EBITDA. This involves identifying one-time or non-recurring expenses and potential post-sale cost structure changes. This adjusted figure is called "normalized" EBITDA.

• Net debt

The company’s value, based on profitability and a multiplier, is decreased by its net debt, to get to the value the seller must receive for the business. Net debt is financial debt (e.g. bank loans, overdraft, financial leasing) minus the total cash of the company.

• Net current assets

The "target" net current assets, typically agreed upon by both parties, are based on the previous year's data (if available). Growth trends, economic conditions, and seasonality are considered when determining net current asset targets.

3. Increase revenue

Companies with higher profitability are more attractive to buyers and command better sale terms. Focus on maximizing revenue before selling by expanding your customer base.

4. Time the sale appropriately

Plan and prepare for the sale 1-2 years in advance. This allows ample time to properly manage the process.

5. Find a reputable consulting firm

For a successful sale, consider partnering with a highly experienced consulting firm like Forvis Mazars. They can guide you through the entire process, providing accounting and financial support, valuing your company, identifying potential buyers, and ensuring legal and financial compliance.

I need help in selling my company

Assistance for selling your company

Forvis Mazars, a global professional services firm with 35,000 experts in over 100 countries, can guide you through the entire sales process.

Our deep understanding of local and international markets ensures a smooth, transparent, and secure experience for you. We'll address your questions from the very beginning and provide solutions for any challenges that may arise.

Let Forvis Mazars help you achieve a successful sale!

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Frequently asked questions about selling your company