Three Partners are Ready to Sell a Flexo Business. What Should We Do First?
Over the years my two partners and I have entertained offers from competitors to buy our flexible packaging business. None of us is particularly vested in staying forever, but we don’t have a specific plan for how we will exit. Each time someone approaches us, we listen to their ideas and get a feel for what they would offer, but it doesn’t go much past that.
Ever since we bought the business, we have been at different stages of wanting to stay or go. Some of us have young families and need a regular paycheck. At other times, some partners were tempted to cash out. Right now we are in a good place where each of us can afford to exit. I don’t want to let this window close. What is the first thing we should do to prepare the business to sell?
The readiness of all partners is a huge element to any exit plan. Do you have anything in writing that discusses how the exit will transpire?
Here are a few points the exit document should include:
- When you bought the company, what was your plan and timeline?
- What were your financial expectations?
- How would the profits from the sale be divided?
- Do the working partners expect to be compensated more highly than the investors?
- How will the remaining assets be dealt with?
- Is real estate involved?
- Are there any other entities that will receive payouts from the proceeds?
- Do any of you (or your family members) wish to continue working in the business under the new owner?
These are just a few of the questions that I cover with clients whose flexible packaging businesses are operated by a partnership.
Exiting a business owned by partners requires analyzing many elements within the printing industry as a whole and in the flexo sector specifically. Being prepared goes beyond just the readiness of those involved.
You may be unwilling to discuss this with your partners right now because you do not want to show your hand or remind them of obligations that do not benefit you. You may be thinking to yourself, I will just pocket a third of the sale and be on my merry way.
Believe me, you are much better off if you do have a document, even if it does not favor you. You will save a lot of time in attorney fees as well as the cost to your peace of mind. Truth matters!
Next, recognize that each of the partners probably has a spouse or family members who are giving input on this decision. Even if the three of you can find an equitable way to divide the business, be realistic about the pressures from those who depend on you financially.
I have seen congenial business partners lose their friendships when it was time to exit the business.
It may sound trite, but money is not everything. For those who run a business, our partners and employees are the people we spend the most time with. It is tragic when lifelong friendships end over money.
One area in which money becomes an issue is when the partners have different expectations about what the business will sell for. You say that you each are ready to exit. But I am guessing that is based on a preconceived notion of what the business can be sold for. It is essential to get an updated valuation for the flexo business, especially in light of recent events.
If you have been entertaining soft offers over the years, you have no idea what the final sales price and terms would have been in those scenarios. You cannot base future decisions on fantasies and what-ifs.
The next thing is for each of you to talk to your own financial advisors to see if you are truly situated for exit. It may be that you will need to buy a new business or go to work elsewhere so you can continue to prepare for the future.
Don’t go into this blind. Wealth management is an ongoing process. The time to determine what you need out of the business is not when you are sitting at the negotiating table.
Speaking of negotiations, as someone who helps buyers and sellers come together, I have seen owners dickering at the negotiating table in front of the buyer. Not only is this unprofessional but it absolutely undermines your negotiating position.
You must be on the same page, all three of you, about price and terms. If you need time away from the table to discuss it, do not wait too long. Deals are flowing this year.
Private equity buyers are looking for certain kinds of businesses that meet their criteria, including the timeframe for due diligence and closing. Time is of the essence, even if there is a competitor who wants to buy your business.
Today’s buyers cannot wait around for you to come up with complicated counter-offers. As you say, the window is open. The longer you spend micro-managing an offer, the more likely your partners will drift away and you will be back where you started.
In an environment like this, it is important to have a professional advisor or business coach on your side who can educate you about the process and keep the deal moving forward.
Have a professional advisor or business coach on your side who can educate you about the process and keep the deal moving forward. Click To Tweet
There are many elements involved when partners sell a business. But you asked about the first step for the partnership.
Contact me for a confidential review of your situation and I will outline your options. Being prepared on the front end with a strategy all three partners can agree on will be foundational to your success in selling your flexo business.
Resources:
https://www.labelandnarrowweb.com/contents/searchcontent/all/ask+rock/
https://printmediacentr.com/ask-rock-how-do-i-know-which-growth-strategy-to-pursue/
Check out other articles in my #AskRock series for more mini case studies and expert answers for the specialty print and converting industry.