The price is right – finding buyers for your business and securing the best deal.

So you have made it to the last episode of Platform Dairies for 2022. After implementing the various nuggets of wisdom from the array of industry experts that we’ve chatted to these past months – you may be thinking to yourself: now what? Well, now it is time to reap the reward of your hard work… because it is time to sell!

Lowell Ricklefs is the Founder/Managing Partner of Traction Advising M&A – a financing advisory firm helping entrepreneurs grow and sell their companies. We discuss what a founder should do after they’ve put in the work, scaled their business, and are now ready to exit.

First and foremost, Lowell says that a founder must prepare, and prepare early. He likens it to selling a house.

“If you just throw a house on the market in its current condition, you’re probably not going to get what you would if you took the time to clean up the yard, landscaping, a little bit of painting, maybe eliminating some of the junk that people don't like to see. You can do the same thing with your company… with a small amount of additional effort and planning you can get another 10 to 20% for the company, so it's worth taking the time to take a step back and focus on cleaning up some things that need to be cleaned up before you sell it.”

But what do these extra tasks look like when you’re planning to sell? Lowell offers that being selective and wise about who your company considers to be a client is one way to increase its value and improve your metrics around retention. Rather than having anyone as a client, which start-ups will often do in the early phase of their business, being selective can improve churn-rate margins. Another way to improve these metrics is to place certain clients as a ‘trial phase’, so they don’t hit your numbers.

“Many people also haven’t thought much about pricing,” Lowell reveals. “Usually, you can bump up 5 to 7 to 10 per cent price increase without losing many, if any, of your clients. That can bump your net retention by 5 to 10%.”

While improving your numbers is one thing, Lowell stresses that the most important thing is ensuring your numbers are accurate.

“Most of the companies who we work with do cash accounting, they don’t do accrual, which is OK, but you want to make sure that it’s accurate. Making sure all of the expenses are actually logged in QuickBooks or whatever you use, and that you have a plan for forecast that’s pretty well thought through.”

Ensuring that the narratives you sell matches your numbers is crucial in closing a sale, as eventually the buyer will fact check your numbers and any discrepancies can result in a lack of trust.

Lowell reveals that these little changes starting a year or more before you would like to sell puts your company in a much better position to go to market.

If you were selling a house, and you’ve cleaned up the yard, lathered on a fresh coat of paint and fished the leaves out of the pool, you’d likely head to your local real estate agent to assist in the process of selling. But what should the owner of a start-up do and where do they go to find buyers?

“Well, I think you have to think like a buyer,” Lowell says. “What I see most people think about is they think about their customers, they think about their competitors, they think about the big players in their existing market – that’s the pool of buyers that they tend to think of… but the reality is you have to take a step back and you’ve got to think about segments of buyers. You may have people that do what you do. You may be based in the US and they're based in Europe. They want a US footprint. So, even though you do the same thing, they pick up your market share and your team in the US. Additionally, you may fill a product gap that a company has.”

Lowell boils the process down to picking segments, flushing out the companies and then doing due diligence on the company to see if it is plausible that they would buy. Then comes the outreach piece to establish contact, and ultimately qualify the buyer. This entire process can take anywhere between 6 to 9 months.

While getting things moving quickly may be tempting, Lowell warns or rushing through the qualifying phase, urging people to be wary of falling into the trap of jumping on an early high offer.

“If buyers know that there are 30 other companies going through due diligence and that you, as the seller, are going to make a shortlist of 30, they may not want to invest the time and the money upfront,” Lowell says.

Consequently, the buyer may make a high offer or an indication of interest, and you may think these guys are great and easy to deal with. On the flip side, there may be another company doing heavy due diligence early on, and it can feel onerous and painful. On top of the heavy questioning, they also may give a lower offer.

It may feel like a no-brainer to go with the former company, offering more cash and appearing very easy going. However, Lowell warns that the former company, throwing out the high offer and asking minimal questions, may not want to do the work upfront. Their early high price was thrown out merely to make your shortlist, and once they do, they’ll begin the hard work. This often means looking at your numbers with a fine-toothed comb and coming up with reasons as to why your company is not worth the initial high offer they threw out, or worse, pulling the deal altogether.  

“It’s important to understand the motivation behind the buyers and some of the games that get played,” Lowell warns.

Lowell also posits that selling your technology company is more like selling a technology product than it is selling a financial instrument. Ensuring that you understand the buyer’s goals and their vision with your company can help you refine your sell, and why you’re a good fit. It can also unlock the reasons as to why this company is looking to acquire and whether or not your product or business is merely a nice to have or a need to have – which can also indicate how likely the deal is to go through.

Are you looking to exit your business? Perhaps you want to sell and don’t know where to look for buyers? Or maybe the entire process feels a bit daunting and you’re not sure what this journey is going to look like.

Listen to this week’s episode of Platform Diaries to learn more about exiting your business and discover useful tips and tricks in navigating the process.