Selling your firm requires early, intentional prep to maximize valuation, avoid risks, and ensure successful transition.
Deciding to sell your firm can be an emotional decision that requires a lot of thoughtful preparation and pre-sale diligence. However owners often don’t dedicate the necessary time, energy, and resources toward this preparation phase. This results in conversations and processes with incomplete information, which can lead to sloppy financials, misaligned leadership objectives, attempting to rework agreements, and potentially detrimental outcomes to the seller. Additionally, admitting you are willing to sell the company is a very closely guarded topic and not one that’s often discussed openly with key leadership and ownership. This is where the nuanced guidance from an outside advisor can help create structure, clarity, and an outlet to develop a best case scenario plan.
Typically transition planning is viewed as an exit plan, but in reality it should be tied to a strategic plan that is oriented around a growth-focused culture. This subtle shift can position a potential seller for a more successful transition. When planning to transition a business with a tightly held ownership structure, there may not be a culture of collaboration and communication from leadership. In these instances, bottlenecks, miscommunication, and other issues can arise if not dealt with accordingly. Developing a growth-oriented culture creates business attributes that are attractive (to both internal and external stakeholders). This takes time and intentional focus from management to get both the culture and the leadership of the firm aligned. But, when this happens it can produce cultural and financial performance outcomes that are very desirable.
We suggest companies spend at least 12 to 24 months working internally to truly assess the different facets of the business and ensure that the backend office reporting and overall business operation is as tight as possible before going into a sell-side posture. A few of the unknowns that pop up during the due diligence effort in a transaction relate to contract transferability, cash management, role definition, HR, and payroll related matters, and the different elements of risk that can be split between the buyer and the seller. If understanding and expectations relating to each of these topics is unclear, a seller could potentially be in jeopardy of forfeiting significant chunks of the overall consideration.
For many sellers, one of the biggest unknown variables in the overall valuation calculation is the net working capital component. Oftentimes, this nuanced yet straightforward calculation doesn’t get the appropriate amount of attention until it’s too late in the process. Initial studies need to be consistent with the rhythm of the business and reflect the true working capital needs of the business at the time of the transaction. Evaluating on and off balance sheet items that relate to the true net working capital requirements of the business gives owners better data as they look to manage cash and position specific business activities going into a transaction. Another area that is perhaps not given as much attention as the valuation of the company is the sales, marketing, and business development engine that the company needs to have running full throttle going into a sale. Backlog, pipeline, and potential opportunities in a particular market truly determine the success of the transaction. Buyers are purchasing the forward-looking success of the business. They really don’t care how successful you were 15 years ago. No offense! It’s just the truth.
There’s a lot that goes into transition planning. Prepping to take your business out to market should not be a hasty decision, but one that leadership and ownership are focused on executing at a high level. Spending the extra time and resources to get it right will pay off significantly in the long run. Adjustments and all the machinations of EBITDA addbacks and cleaning up your P&L is the easiest part. I can tell you, your return on the investment will come back in multiples of the investment, not pennies on the dollar. So don’t shy away from making the leap if an external path is on the table for your firm.
Zweig Group’s Mergers & Acquisitions team specializes in helping AEC firm owners navigate the complexities of sell-side transactions with clarity and confidence. From preparing your business for market to identifying the right buyers and negotiating the best terms, we manage the process from start to finish. Our proven approach combines deep industry expertise, strategic positioning, and a relentless focus on maximizing value for our clients. Partner with Zweig Group to ensure your firm’s next chapter is as successful as its legacy. Reach out to our M&A team today to start a confidential conversation.
Will Swearingen is senior director of Transition consulting at Zweig Group. Contact him at wswearingen@zweiggroup.com.
