Four signs it might be time to sell a company, and CFO insights for next steps

by Lyle Newkirk

The thought of selling a business can be highly emotional. This is especially true for owners or executives in middle-market businesses who often totally identify with the business. Nonetheless, there often comes a time when an exit makes sense for all parties. Owners should understand and be prepared for these situations to optimise the value of a company without compromising its financial health.

With that in mind, here are four signs it might be time to sell, and chief financial officer (CFO) insights for next steps:

Strategic opportunity: If a business has positioned itself correctly and established a strong and leading footprint in its industry, it is likely to attract strategic buyers who want to acquire the business. This is a great scenario. Once the terms of that strategic deal are settled, the CFO and executive team should exert all efforts to get that deal closed, making sure all of the deal advisors are on the same page to meet all deadlines, answer all requests clearly and promptly, and not slow things down. Remember – time kills deals.
Competitive adjacency: Although fiercely pushing to beat competitors is common, at some point, industry consolidation may occur, and an attractive opportunity to sell to a competitor might be found. These opportunities can present complications for deal completion, with egos, culture clashes, and hard feelings that can powerfully influence results. The CFO and management team need to be “the adults in the room” by remaining calm and alerting leadership when emotions are getting in the way of deal completion.
Demographics: Over USD 10 trillion of net worth in over 12 million businesses will change hands in the United States over the next decade as aging baby boomers exit their businesses. This is a once-in-a-lifetime deal for most business owners. Do not wait until the year of an expected exit to prepare for the deal. Ensuring financial reporting, forecasts, and key data are in order well in advance is critical. If the in-house talent has not been through a transaction before, bring in outside help, particularly in the CFO area. The best approach is to always run a business like it is about to be for sale.
Financial struggles: Unfortunately, it happens. Markets change, the economy has cycles, and sometimes there is self-inflicted damage. An exit may be the best outcome if a downturn is concluded not to be temporary. Obtaining a good exit when the numbers are soft is tough, and it requires focus to derive the best value possible. Having the right team in place, particularly in finance, and coordinating deal strategy regularly with the finance team is imperative. Being honest and forthright with financial data shared with buyers is a must, and how it is presented can matter a lot. Having a savvy CFO and a financial planning and analysis (FP&A) professional working on your deal can make a big difference.

In all the above scenarios, business performance during an exit is critical. This is the wrong time to have a sales slump, high customer attrition, accounting mistakes, key employee exits, etc. Surprises or declines in business performance can result in losing the deal or taking a painful haircut.

A seasoned strategic fractional CFO is an incredible resource for assessing available options, creating a plan, and preparing to sell. This is not the right time for members of the financial team to learn as they go, or to consult with AI on the best next steps. Preserving value in a deal, or in some cases, preserving the deal, may hinge on having the right financial leadership in place, even if it is temporary leadership.

Lyle Newkirk is a partner in the Atlanta office of SeatonHill. He has over 35 years of experience in CFO and executive finance roles. He has worked with public and private companies based in the US and internationally, where he developed strategies to achieve significant top-line revenue growth.

USA SeatonHill Partners