Running a business is no small feat. But what happens when it's time to sell? Enter Channing Hamlet, a managing director at Objective Investment Banking and Valuation. With over 25 years of experience, Channing knows a thing or two about selling businesses for the best possible price. Host of The Deep Wealth Podcast and post-exit entrepreneur Jeffrey Feldberg speaks with Channing to reveal what you need to know.
Channing emphasizes the importance of having a solid foundation in both technical expertise and business acumen. "At the end of the day, the job is all around using a combination of technical skills, business acumen, and negotiation to help our clients create a great outcome," he says.
Understand the Basics of Selling
First things first: selling your business isn't just about finding someone to buy it. It's a complex process involving careful preparation and strategy. Channing stresses the importance of understanding your market and industry. "Every industry has trade associations that publish data," he says. "Understanding where you are generally speaking in your industry is really important."
Channing believes that failing to prepare is preparing to fail. One must start preparing early, even if you're not looking to sell right away. He suggests beginning by identifying the key performance indicators (KPIs) for your business. As he puts it, "most people look at me like I have three heads" when he asks about KPIs. But they are crucial. KPIs help you measure and improve your business's performance.
When discussing the current market, Channing points out a crucial oversight many business owners make: the lack of preparation for an exit strategy. Successful business owners are adept at running their businesses, but few realize the level of preparation needed for a liquidity event (an event that allows a company’s stakeholders to convert some or all of their ownership into cash).
"Buyers come in and do nine or ten streams of due diligence," Channing explains, cautioning that without proper preparation, business owners may find themselves at a disadvantage. He highlights the importance of having clean financials and a compelling value proposition, which are key areas that often get overlooked.
Another key piece of advice is creating a competitive process when selling your business. This means having multiple buyers at the table. It not only increases your chances of getting a good offer but also ensures you get the best possible price. "Creating a sense that they're going to miss out unless they step up with a strong deal" is crucial, according to Channing. You want as many qualified buyers as possible competing for your business so they put their best foot forward.
Channing offers practical advice to help business owners avoid these pitfalls. Key performance indicators (KPIs) are more than just numbers; they're a roadmap to value. Reflecting on his private equity experience, he states, "It's not just revenue and profit. It's the underlying metrics in the business that drive value." A business's success can hinge on understanding what drives its value and ensuring those metrics are measured and optimized.
In addition to KPIs, setting a realistic budget is crucial. Many businesses operate without a structured financial plan. Building a watertight budget aids in understanding the operational levers and ensures better decision-making, particularly when preparing for a sale.
Work with Experts
Don't try to go it alone. Work with investment bankers and other transaction experts. These professionals know the market and can guide you through the complexities of selling your business. They will help you find buyers that you might never have thought of. "There's a lot of capital out there right now," says Channing, emphasizing the importance of leveraging expertise to find the right buyers and secure the best deal.
Craft a Compelling Story
Your business has a story, and it's critical to tell it well. Why should someone buy your business instead of a competitor's? Channing stresses the importance of differentiation. "Clear differentiation from competition... is worth extra multiples." Identify what makes your business unique and highlight these factors during the selling process.
Get the Financials Right
One common mistake business owners make is failing to get their financials in order. Channing advises having a strong financial infrastructure in place. Buyers will spend millions on due diligence, so be prepared. "Most companies underinvest in their finance and accounting infrastructure," he warns. Develop a rock-solid budget and understand the financial levers of your business.
Envision Post-Acquisition Success
It's important to think about what the business looks like after the sale. When buyers see a clear path to growth and achievements post-acquisition, they're more eager to make a deal. According to Channing, "getting the buyer to fall in love with the management team and having the management team be really prepared... is absolutely critical to gaining confidence with the buyer."
Timing and Strategy
Knowing the right time to sell is also crucial. Keep an eye on your industry trends and economic cycles. Selling in a market upswing can mean higher valuations. Channing recounts the tale of a company that excelled by aligning its sales with favorable industry trends. This strategic timing maximized the sale's value.
Attracting the Right Buyers
Attracting the right buyers goes beyond just finding someone with the money to buy. Channing recommends examining potential buyers not just for their financial capability, but for strategic fit as well. Who will take care of your employees? Who aligns with your company values and goals? These considerations are essential for a successful sale that meets your objectives.
Understanding what potential buyers look for can give you a competitive edge. Channing explores the perspectives of both strategic and private equity buyers. With strategic buyers, gaps in their capabilities or product lines can lead to premium offers. Channing illustrates this through a real-world example of a lab equipment company whose niche expertise attracted a buyer needing to fill a product line gap.
Private equity buyers, on the other hand, seek potential for cash flow positive ventures. "Private equity has gone from a very small cottage industry to an absolute behemoth," Channing remarks, indicating the abundance of available capital and how it impacts acquisition strategies.
Final Thoughts from Channing
Channing Hamlet leaves us with a critical reminder: "Failing to prepare is preparing to fail." For business owners thinking about selling, take time to prepare your business thoroughly. Seek expert advice, understand your financials, and create a strategic plan that highlights what makes your business special. Doing so will not only increase the likelihood of a successful sale but also ensure you get the best possible deal.
The magic happens when a business owner prepares diligently. Channing stresses that preparation isn't just about understanding financials or the market. It's about getting the management team ready and ensuring they can articulate the company's value well. "Having your management team well-rehearsed and prepared is absolutely critical," Channing advises, underscoring the significance of internal readiness.
For businesses that are thinking about selling, it's crucial to engage with the right experts, such as investment bankers and M&A attorneys. "Failing to prepare is preparing to fail," he insists, a mantra that holds immense value for those on the brink of a major liquidity event.
In short, selling your business isn't just a transaction—it's a journey. By following the steps outlined here, business owners can navigate this journey more effectively, with confidence and clarity for both themselves and future owners. As always, planning and preparation lay the groundwork for success.
Channing Hamlet's insights offer invaluable lessons for business owners at any stage. His experience shows that success in business is often the result of well-thought-out preparation and strategic foresight. This podcast episode serves as a reminder that while the road to financial independence and business legacy can be fraught with challenges, the right preparation can pave the way for an incredible future.
With these insights in mind, the message is clear: start preparing now. Whether your exit is imminent or years away, the groundwork you lay today can dramatically affect the outcome tomorrow. If there's one takeaway, it's Channing's advice echoing loudly: "The best time to start was yesterday, so today is the next best time."
For more expert insights, make sure to tune into the Deep Wealth Podcast and listen firsthand to the strategies that can propel your business to greater heights.
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