Four Key Questions to Answer Before Responding to an Offer on Your Business
For many owners, receiving an offer on their business is part of the vision they’ve worked toward for years. A serious, unsolicited offer can be a sign that what you’ve built has lasting value. While the offer is worth celebrating, making the right decision for you and your stakeholders requires careful analysis.
How can you determine if it’s time for you to accept an offer? The answers to the following four questions can give you the insight needed to make the best decision.
Is the offer on target?
After you receive an offer, begin with an evaluation of whether or not it is reasonable. Is the offer high, low, or just right for your company’s value? As the owner, you know more than the potential buyer about your company but not necessarily whether it’s a good price. Insight from a trusted investment banker and looking at your business without bias should both be top of mind. Your decision should be based not only on today’s value, but also on the likelihood of your company appreciating in value over the next few years.
A key part of your process should be a “quality of earnings” analysis. The analysis is more than an audit, which focuses on one point in time. A more complete review analyzes trends to better explain your company’s value to prospective buyers. There should be no surprises for you or the buyer during the sales process. Once you’ve determined that you want to pursue an offer, be willing to open your books and records with the assistance of a trusted advisor and be upfront with the buyer.
Does the offer fit you company’s culture?
Not every buyer is right for every seller. Deals can fall apart or be wildly successful based on the fit of the buyer and seller for several reasons including: company culture, industry dynamics, product familiarity, and people. Review the buyer’s offer and think about how the company you’ve built will fit within their current portfolio. Do you think you or your employees/customers/vendors will want to work with the new owner? If the buyer is a strategic buyer, are the two companies and products complimentary to each other?
Will the offer provide the right landing for you?
Whether the offer was unsolicited or something you’ve pursued, you will have to decide how a sale will impact you. Will the price provide enough support for you for years to come? Maybe you’re ready to launch a new venture and the offer provides the perfect exit. Or it could be that the offer is just right, but you aren’t quite ready to make a clean break with what you’ve built.
Talk with your family and friends and decide where you want to be the day after the deal is done. Make sure that destination is available to you or, if necessary, pass on the deal if you aren’t satisfied with your exit or leadership options.
Does the timing work for you and the company?
Spend time determining whether now is the right time to sell. In addition to your knowledge of your industry, seek insight from a professional advisor on the projected outlook for your business before you make a final decision.
There are potential risks and rewards if you decline an offer in the hopes of attracting a better offer in the future. Changes in the political and economic landscape, as well as in your industry, can make a difference in future offers. While you can’t anticipate every outcome, considering the possibilities based on what you know today can help you make the best possible decision.