Buying and selling a business involves a meeting of the minds – and those minds often come from very opposite perspectives.
Sellers are proud of what they’ve built – and rightly so. They want their hard work to be recognized and rewarded – they may even have a number in mind in terms of what it will take for them to walk away happy. They know every inch of their business, and they may expect that potential buyers will recognize a great company when they see one.
Buyers are inherently suspicious – and rightly so. They attempt to leave no stone unturned so they can understand: What am I buying? Is this a good deal?
To make it all the way to the dotted line, the two sides need to see eye-to-eye, even if their negotiations don’t end up in the exact middle.
For a seller, one of the best ways to ensure that happens is to put yourself in a buyer’s shoes: take an objective look at your business, based on documentation only, and see what picture those documents paint.
Not as easy as it sounds, right?
Part of the job of a virtual CFO is to play that role of the objective observer, who anticipates what a buyer wants to know and can help the seller put that information together ahead of time.
A forthcoming seller earns a lot of trust: They show their cards so the buyer doesn’t wonder what else they are hiding.
How does a buyer judge your transportation business?
A buyer wants to see strong financials and good cash flow, that’s a given. But there are also non-financials that will push a buyer to approach the negotiating table, including some factors that are simply a question of match:
- Does the company offer new services, i.e. 3PL (Third Party Logistics), warehousing or different equipment types (open-deck, tanker, reefer, etc.)?
- Is there a culture fit?
- Will there be synergies between the new company and any current holdings that eliminate duplication of costs?
As a seller, the above factors are outside of your control. Either you fit what they’re looking for or you don’t. Then there are the factors you can influence, which include:
- The experience level of your management team and workforce
- Your customer diversification (not having a single customer represent too high a percentage of receivables; 25% is a good rule of thumb)
- Your industry diversification
- A low level of risk/exposure
- A strong reputation (good name recognition)
- A favorable deal structure: seller’s willingness to carry paper (usually 3-5 years)
A buyer will consider all these factors as they determine what multiple of EBITDA to offer: That’s why you don’t want to go by gut. You may feel your management team is experienced, but a buyer will want to see numbers. Run the numbers today – with the help of a virtual CFO if necessary – and then create a plan to improve any areas that are holding you back.
None of these improvements happen overnight, which is why we always recommend preparing for a sale years in advance, so that you can keep your eye on the amount you want to walk away with, and then set targets accordingly.
The final piece of the puzzle is simple but not easy:
- Be transparent in providing information – full disclosure of documents during due diligence.
When a buyer sees full disclosure along with clean financials (i.e. GAAP statements and regular forecasts), that goes a long way. Take fear out of the decision, and you’ll get to “yes” faster – with terms that appeal to both sides.
If you need any help preparing your business for sale, our virtual CFO services for transportation and logistics businesses may help. You can also schedule a consultation with one of our virtual CFOs below if you’d like to discuss our services.
