3 Things to Understand About Selling Your Business
As a business owner, you worked diligently to build a company ripe for acquisition. However, most owners learn quickly that selling a software company is a demanding process.
How demanding? Consider this:
- Your buyers may turn your company inside out with an extensive due diligence process.
- Expect to work harder than ever before, keeping your business running during the all-consuming negotiations.
- And your employees? Just try keeping them focused while their suspicious minds wonder about what’s happening.
We continually meet business owners who are surprised by these considerations, or other parts of the sales process.
That’s why it’s important to understand what you are getting into.
In fact, it’s the most critical step an owner can take when thinking about selling their company – make sure you understand the sales process.
If you believe the time is right to sell, continue reading this post.
We’ve divided the sales process into three parts – the due diligence phase, the negotiating phase, and the final deal – and provided some lessons learned for each phase.
1. The Due Diligence Phase
Once the potential buyer has decided to move forward, they almost always begin a phase of due diligence.
Don’t be alarmed by the depth of their investigation. Your buyers could request everything imaginable, including:
- Financial information
- Customer references
- Insurance documents
That’s common. People want certainty before moving ahead. Do your best to help them get answers to their questions.
However, pay attention to the timing. They should do it right, but their due diligence shouldn’t drag on for so long that it takes momentum away from the sales process.
If it does, reel them back in and press them about moving forward.
It’s your business to sell through a competitive market process. They shouldn’t hijack that process.
2. The Negotiation Phase
When you reach the negotiation phase you should begin to appreciate that selling your company is hard work!
At this stage, clear the decks for some serious work ahead.
It’s good to know in advance that you may need to crunch some numbers, as well as keep focused on productivity.
Determine your Baseline Value
The negotiations may stumble over differing perspectives on what the company is worth.
Don’t let the prospective buyers taint your point of view.
Determine the value beforehand. Develop your baseline numbers, and enter the negotiations with those in mind.
You cannot negotiate properly without a baseline. It serves as a guide of fair market value.
Keep Employees Performing
The sales process naturally impacts your employees. It’s almost inevitable.
Even if you haven’t made an announcement, chances are they have heard something, or they can feel it coming. People are naturally gifted at detecting when their environment is about to shift.
However, it’s critically important that productivity remain high. A drop in performance can hurt the entire process. Keep your people focused.
3. The Final Deal
You’re in the home stretch and the finish line is in sight. Are you sprinting to the finish? Not so fast.
Remember: you’re selling the entire company. You cannot simply accept an offer because that’s the next step in the process.
You must be convinced (beyond a reasonable doubt - your legal counsel will tell you) that this is the best offer – the result of a competitive, market-based process.
Too many owners are swept away and let the momentum of the sales process carry them towards the finish. It took years to build the company. Be sure you know that when you sign the final deal, you’re doing it purposefully and happily.
Your Turn
Are you preparing to sell your software company? Have you encountered challenges along the way that you didn’t anticipate? What lessons have you learned? Share your thoughts and questions with us on Facebook, LinkedIn, or Twitter, and don’t forget to share this post if you found it useful.