Company mergers and brand acquisitions – or Mergers & Acquisitions (M&A) – are part and parcel of the corporate world. From 1958 to the present date, more than 1 million collaborations have taken place (data credit: Statista). And behind these increasing acquisitions, there are plenty of reasons why companies sell their successful brands to other companies. Many sellers seek an exit because they no longer want to manage the brand or aspire to convert their equity into cash to set up a new business. However, some sellers sell because they want to increase their brand’s operational footprint or place it in the hands of superior management to unlock higher financial value.
Regardless of the reason, if you plan to sell your brand, you should know a few crucial things before signing on the dotted line. Read on to learn more.
Your Brand’s Valuation Sets a Gauge for Your Asking Price
Some brand owners consider selling the brand when it’s not profitable. This may be because they’d like to retire, or because they’re ill. Sometimes, a partnership dispute may be the impetus to sell a brand. Although all of these are valid reasons, you should avoid selling your brand when it’s not profitable because you will struggle to attract a buyer. So, before starting the sales process, first consider the brand’s ability to sell and turn a profit.
Also determine its valuation or “worth”. This is not always easy, so you should bring in a professional valuation firm. These experts will take into account your inventories, sales, debts, and assets to help you:
- Determine your brand’s value in $$ terms
- Draw up a detailed explanation of this worth
- Set a realistic asking price
- Bring credibility to this price
When it comes to selling a brand, timing is crucial. This doesn’t mean that you should haphazardly step on the accelerator – which can be especially harmful if your brand is unprofitable (see previous section). But what it does mean is that you should time your exit.
You want to sell your brand when things are good. You also want to sell to ensure that things remain good. For this, preparation and patience are vital. Ideally, you should prepare for the sale as early as possible. Such preparation will help you to:
- Improve your financial and other records
- Get up-to-date on current trends in your industry that may impact your sale
- Create a workable exit strategy
- Document your business structure
- Strengthen your customer base
If you give yourself at least a year or two to plan the sale, perform the valuation, and prepare all documentation, you can make your brand more profitable, and increase the likelihood of attracting a good buyer with deep pockets.
Make Sure your Documentation is in Good Shape
Earlier we discussed how your brand’s financial value and profitability can impact its sale. To prove this value and profitability, you need to have all your financial documents in order. This includes:
- Financial statements like balance sheets, profit and loss statements, and cash flow statements
- Tax returns going back to at least three years (assuming your brand has been in business that long)
- Details about equipment, inventory, property (including lease or purchase documents), and other assets or liabilities
- Details about intellectual property and intangible assets (e.g., goodwill)
Ideally, you should also prepare an operating manual and a list of sales contacts. Work with an accountant or business consultant to review these documents and bring them up-to-date for maximum relevancy and transparency that potential buyers appreciate (and demand).
Present these documents in an organized and easy-to-read format so potential buyers can quickly gauge your brand’s potential, and make a decision that ultimately benefits you and your brand.
Independent Employees Can Increase Your Brand’s Resale Value
A high-value brand sale can be a huge feather in your professional cap. Most brand owners don’t think about selling the brand when they’re still trying to expand teams, improve productivity, and even achieve break-even sales. However, this is a mistake.
You should always think about how you can successfully sell your brand somewhere down the line. This will help you streamline operations, keep everything in good shape at all times, and ensure that the brand remains consistently profitable. This in turn can increase your brand’s resale value when you do decide to sell.
Independent and competent employees can also positively impact your resale value. Qualified and dedicated team members can do more than execute tasks. They can also:
- Handle problems and put out “fires”
- Work well without constant inputs from company management or leadership
- Ensure the company operates seamlessly with minimal hiccups
- Keep the brand on-course with its short-, medium- and long-term goals and objectives
When you sell your brand, the buying company likely won’t replace every employee. If you want your brand to continue to flourish after selling it, you must hire the most competent employees who can work independently. Train them well and give them hands-on experience from the very beginning.
Also document the company’s policies, best practices, and standard operating procedures (SOPs) to ensure that everyone operates productively, efficiently, and ultimately, profitably. Potential buyers evaluate all these factors when buying a brand and determining their purchase price.
Selling your brand can be both a complex endeavor, and a profitable venture. To minimize the deal’s complexity and maximize its profitability, preparation is crucial. It’s also important to ensure the brand is in the best possible financial shape for a sale. Finally, updated documentation and independent, well-functioning employees are vital for a successful transition.
Ergode knows a lot about buying brands! It has acquired brands of every product and service type and elevated it in the ecommerce market with its AI-powered technology, 3PL network, robust operations, and branding tools. To know how Ergode’s unique acquisition, scaling, and profitability strategies can benefit your brand, get in touch.