How to Sell a Business That’s ‘Not for Sale’

When the time comes to sell a business, the best place for it to be is in an expanding segment of the industry it belongs to. Right now, that good fortune is smiling warmly on sellers of companies that specialize in folding cartons, flexible bags and pouches, labels, and many other forms of packaging.

For companies like these, preparing for sale is largely a matter of continuing to follow the best practices that made the business successful in the first place. In most cases, buyers seeking companies in the packaging and label segments aim to acquire them as going concerns. This means preparation should concentrate on whatever can be done to convince the buyer that the company is profitable, growing, and focused on the future.

The main guideline here is to go on running the company as if it weren’t for sale. The seller should continue to implement the business plan without slowdowns in any facet of the operation. A firm that doesn’t have a formal business plan should develop one with an implementation time frame of at least two years. This will demonstrate to buyers that the seller’s strategic commitment to the future of the business is serious.

Finesse the Finance

Financial preparation consists of ensuring the balance sheet and income statement are strong. All cost centers should be reviewed for expenses that can be trimmed or eliminated. Reducing debt and shoring up the company’s working capital position are other important parts of this exercise.

Next, analyze the customer list. The last thing a seller wants a buyer to find on it during due diligence is a large number of unprofitable accounts. Those that do not contribute adequate margins should be retired without delay. The same scrutiny should be applied to highly concentrated accounts that contribute disproportionate shares of revenue.

A review of staffing is also in order. Unproductive employees or those who have created management problems should be removed from the roster before the company is placed on the market.

More positively, people who are able to step up into senior positions under new ownership should be identified. Now is also the time for the selling owner to decide how long they would be willing to stay on in a post-sale transitional role if that is what the buyer wants.

It's equally important to think about the impression the plant will make when prospective buyers visit. Having a clean, clutter-free, and well-organized environment should go without saying. Equipment should be clean and well maintained, and machinery not in use should be removed. Don’t overlook outdated inventory; anything remaining in stock that isn’t going to be used can be discarded.

Purchase Prudently

A question sometimes arises about capital investment in new equipment after the decision to sell has been made. Our answer usually is that if the current business plan calls for something to be purchased, purchase it.

This is especially advisable when the new piece of equipment will both expand capacity and reduce the total number of machines that the plant needs to operate. Another argument in favor of investing is the fact that if the buyer has to replace old equipment that the seller has failed to retire, the offering price for the business as a whole probably will be reduced by an amount equal to what it cost the buyer to make the replacement.

Preparation for selling isn’t just about plant, personnel, and equipment. Owners of label and packaging firms also have an opportunity to make the business attractive in ways that aren’t strictly related to production.

This can be done by adding complementary services such as e-commerce through custom storefronts; kitting and fulfillment; warehousing and distribution; creative design; and promotional support. These activities often enjoy higher margins than production, a fact not lost on buyers.

Verify the Value

Business valuation — determining how much the company is worth and inferring from that the kinds of offers buyers are likely to make for it — is a fundamental first step toward selling. It’s essential to make the assessment early in the process with the help of a business evaluation professional who knows and understands the market segment the seller operates in.

Before proceeding to market, it’s also crucial for the seller to be realistic about what the valuation reveals. This sometimes is not easy for owners who have spent a lifetime building up their businesses and imagining the sums they will reap when they sell.

When our role as advisors to sellers requires us to manage their expectations about what buyers will be prepared to offer them, that is what we will do. Clarity at the outset sets a harmonious tone for the entire selling process and positions the seller as someone buyers can feel confident about doing business with. That’s the key to efficient negotiations and a mutually satisfactory close.