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Oliver Cone is a co-author of this post, and is a Senior Vice President at Bulkley Capital.  Bulkley is  an M&A advisory firm based in Dallas that manages tailored sales processes for privately held companies across the U.S. with values of $15 million or  more.

The reasons for selling your private company are highly individualized. You may have taken your company quite far and are now ready for your next challenge; it may now be time to retire and convert the substantial value you have created in the business into cash that you can put in the bank; or perhaps the strong relationship you once had with your business partner has run its course. Whatever the reason, once you have reached the decision to sell your business, the question is what comes next?

Most private company owners go through a sales transaction just once, but it will be the most consequential business deal of their lives. It is therefore critical for the majority owner to be ready, and this post provides guidance for those considering this path.

Preparing for the Sale

Before beginning to consider selling a private company, it is important for the business owner to understand the nature of the sales process, the timetable that is likely to be involved, and the preparation required for the ultimate result to be successful.

  • Selling a business is an elaborate process, not an event. From starting the process to closing on a sale generally takes six to eight months, including preparation, but it could be longer depending on a number of factors. This timetable may be extended if a potential buyer does not emerge promptly, if there are several suitors creating a bidding process, if due diligence becomes more extensive, or if there are issues that require more extensive negotiation, such as contracts for key employees, transition of IP rights, or dealing with special indemnity issues such as environmental concerns.
  • Nothing substitutes for comprehensive preparation. A business is not a loaf of bread, and it is more much than its financial statements. As a result, there are significant rewards to be obtained if the owner will spend the time and money to develop a compelling story that will be attractive to sophisticated buyers. This includes compiling the data that buyers will want to review, validating financial results with a quality of earnings report (QoE) and presenting the company’s potential in the best possible light.
  • Buyers are paying for the future. Following up on the previous point, in order to maximize value, the owner needs to present to potential buyers a clear path for future growth of the company and that the company has what it takes to get there. The owner knows best about what opportunities exist for the company if it had enough time and investment capital to realize them.

The Owner’s Role in the Sales Process

While it may seem logical for the owner to be front and center as the one who is driving the sales process, that is not the best approach in most instances.

  • The owner should remain in the background. If the owner appears indispensable to the ongoing business, that will be interpreted as a risk by the buyer who knows that the owner will be leaving at some point after the transaction closes. The owner will therefore want to point to current and future leaders of the business to show they are more than capable of helping the business to grow and thrive when he or she departs. Further, the owner should not wait until the transaction is on the verge of closing before handing responsibility over to key members of the management team.
  • Master the critical details. The sales process will include an exhaustive analysis of things that the owner knows intuitively, but which may be rarely tracked and documented by the business. The owner should not expect the buyer to simply take the owner’s word for these things, and they should be documented. Examples include: (i) the margin profile of the company’s products or lines of business, (ii) employee tenure and turnover rates, (iii) the nature and length of top customer relationships, and (iv) the terms of key agreements, e.g., leases, customers, and vendor contracts.
  • Engage with more than one potential buyer. Involving more than one buyer in the process is likely to enhance the perceived value of the business, and therefore, the owner is advised not to deal with just one suitor. A horse race among several viable buyers provides the owner with negotiating leverage and ultimately yields the best price.
  • Arbitrary actions can do real harm. The process should be targeted, using a rifle-shot – rather than shotgun – to locate only the most viable/attractive buyers. That is the best way to ensure confidentiality of important information, to protect key customer and vendor relationships, and to avoid fear and anxiety among the employees.

Make the Process a Team Effort

There are many different facets of the sales process, and the owner will experience great stress and likely drop some balls if he or she attempts to do this without help.

  • You need help from your team. The owner has built a viable, thriving business and there are too many questions for just one person alone to answer. The owner should bring trusted employees into the sale process and communicate clearly with them why the transaction will be good for the company and its teammembers. Putting in place financial retention mechanisms can ease employee concerns about life after the transaction.
  • Engage experienced professionals. Finally, the optimal result is more likely to be obtained when the owner retains professional M&A advisors who understand the industry, who are able to source the best potential buyers to purchase the business, and who can present the company in the most favorable light to these buyers.


Selling a business is a big deal, and it should be approached in a strategic, coordinated fashion with the understanding that it will require a tremendous amount of effort. Gathering all the necessary information will have the owner burning the candle at both ends. And navigating through unfamiliar waters when the stakes are so high produces a high level of stress. The good news is that there is a proven path to success and experienced professionals available who can help along the way. The end goal will be worth it if the sales process is handled in a manner that allows the owner to realize a substantial financial reward for years of effort and sacrifice.

*Oliver Cone is not an attorney and the views and opinions expressed in this article do not reflect those of the firm.

Private growth companies have ups and downs – only rocket ships tend to go straight up.  Therefore, it can be difficult for an investor holding a minority stake in a private company to know whether a challenging time for the business represents only a temporary rough patch, or  whether the company’s road to long-term success has become much steeper. This post reviews various problems that arise in business to help minority investors evaluate the impact the company is facing. In most cases, the best approach when a problem arises is for the investor to wait and see if the company mounts an effective response to address the situation. But if the company’s response seems to be digging a deeper hole, seeking a prompt exit from the business may be the investor’s wisest path.

Initial Question – Does the Potential Exist for a Partner Exit?

The first step for a minority investor in evaluating whether it is time to seek an exit from a business is to determine whether this exit right exists in the company’s governance documents or in any agreements that the investor entered into with the other owners of the business. If a minority investor does not have a buy-sell agreement in place that requires either the majority owner or the company to repurchase the investor’s ownership interest in the business, the investor may simply lack the ability to exit the business when desired. We have posted before about the importance of securing a buy-sell agreement or other partner exit plan at the time the investment is made. When an investor has reached the decision to exit the business, the existence of the buy-sell agreement is essential to secure a timely departure on reasonable financial terms.  

For those minority investors who have the right to trigger an exit from the business, the remaining portion of this post reviews a number of problems that can arise during the growth phase of the business, which may cause the investor to decide to exercise that right.

Departure of One or More Company Founders

It is not uncommon for one or more company founders to depart during the company’s growth phase. Some entrepreneurs are simply much better at conceiving of a new, profitable idea than executing on it in a business setting. The peaceful departure of a founder who is not equipped to facilitate the growth of the business could be a positive for the company. This is particularly true when the departing founder retains a stake in the business and remains fully supportive of the business and the remaining or new management team.

In a more dysfunctional scenario, however, a company founder may be ousted due to financial struggles, removed by larger investors, or remain a negative external influence. In this situation, it may seem like the best course is to abandon ship when the founder is removed. But caution is advised, because the larger investor will not want to see its investment in the company squandered. As a result, this large investor may bring in a more experienced management group, oversee a better growth plan for the business, and turn the company around. Thus, before seeking an immediate exit when one of the company’s founders departs under hostile circumstances, the investor may want to allow the dust to settle a bit to see whether the company’s next phase is more promising after new leadership has been installed. 

Entry of New, Larger Competitor in the Marketplace

The early success of the company may attract other competitors to the marketplace, and if so, and some of them may be larger and better funded. Taking on an established competitor can be a very daunting task for a growth company. But once again, jettisoning the investment in the company at the first sign of more seasoned competition entering the marketplace is not advised.  The growth company is smaller and likely to be more nimble, more connected to the customers and vendors, and may be preferred over the larger company. This is another situation where patience is required to see whether the company can withstand and continue to succeed in response to the challenges that are posed by the larger competitor. 

It is not unusual for the larger competitor to realize at some point that it is better to join forces with the growth company than to continue to divide the market. If this happens, and the larger company seeks to purchase its smaller competitor, this would be regarded as a strategic acquisition. This transaction would bring top dollar for the private company and provide the investors with handsome returns. Of course, this will only happen if the growth company is able to continue thriving in response to the competition posed by the larger competitor. 

Government Delays in Issuing Certifications, Approvals or Patents

For companies doing business in regulated industries or that rely on patents to protect their intellectual property, delays by the government in permitting new drug trials, giving FDA approvals or issuing patents can be harmful, if not devastating to the business. But liquidating a private company investment once the news of the delay is received is likely not the best option.  At that point, the company’s value will be at a low point, and an exit at this stage is destined to result in a significant loss. Thus, the investor must decide whether to exit at this low point or to stay the course in hopes that the company can survive the delay, secure a belated approval from the government or await the issuance of a new patent to boost the company’s value.

Assessing Litigation Risk

Another frequent business risk is litigation that embroils the company, and lawsuits can threaten the company both internally and from third parties. By way of example, the founders of the company can become involved in fights over control, the company could be hit with lawsuits by competitors, or the company could become subject to some type of cyberattack resulting in litigation by customers. Each of these lawsuits presents different types of problems to assess, which may be difficult because the investor likely will not have access to all of the facts that are necessary to thoroughly evaluate the risk that the litigation poses to the company. 

In this situation, some important questions for the investor to consider before seeking to exit the business are: (1) Is the litigation an existential threat, i.e., are the claims severe enough that they threaten to bring about the company’s demise or does it present a challenge that can likely be managed by the company’s leaders; (2) does the company have insurance that applies to the claim and the legal defense costs (claims that are covered by insurance pose far less risk for the company); and (3) is the company functioning on a business as usual basis while the litigation is ongoing, or is the litigation such a large distraction that is having a direct, negative impact on the company’s performance? Securing the answers to these questions will help the investor to decide whether the company can ride out the storm of the litigation or whether getting out before the litigation concludes is the right option, which would be before things become even more dire for the business.


Growth companies are successful not because they have no problems, but because they have learned to overcome their challenges. Investors in these companies also need to decide whether their company and its management team are built to last, or whether the company lacks the resources or the leadership skills necessary to survive over the long haul. If the company is responding effectively to the types of problems discussed in this post, it may be best to stay the course, but if the company is struggling to overcome them, the investor may need to exit and find a better opportunity in which to invest. Many investors refer to the “eye test,” as in don’t deny what your eyes are seeing when the bloom has come off the rose. 

The public markets were down last year, and private company values also took a hit. So, is now a good time for a new investment in a private company? The best answer is it depends.  There is never a bad time to invest in a great company, and when the value of a terrific business is lower in a tough business cycle, it is a superb investment opportunity. Before making a new private company investment, however, it is wise to consider if there are red flags, because the risks involved in private company investing are notable. According to LendingTree, 18.4% of private companies based in the U.S. fail within just one year, 49.7% go out of business in five years and by year 10, 65.5% have failed. This post reviews some of the red flags that should be carefully assessed before making a new private equity investment.

Lack of Transparency in Financial Reporting

The first red flag may be the condition of the company’s financial books and records. If the company’s financial reports don’t clearly set forth how well the company is performing, and a potential investor cannot discern whether the company is flourishing or floundering, that is a major concern. The basic questions to ask include:  (1) Are the profits or losses of the company clearly stated in its financial reports; (2) does the company work with a reputable outside accounting firm or does it handle all of its finances and taxes internally; and (3) does the company have a strong CFO or controller who presents the financial condition of the company in plain terms?

If the answers to any of the foregoing questions is no, that is a red flag. If the company’s financial reports are muddled, if the company has no oversight from outside, experienced CPAs, and if there is no one at the company with a strong grip on its finances, it is not reasonable for an investor to expect that these troubling issues will suddenly improve after the investment is made.

Declining or Inconsistent Profit Margins

When the financial reports are clear but they reflect that the company’s profits are not stable, that is as serious a concern as having poor financial reporting. Ideally, investors want to see profits rapidly increasing, or at least trending upwards. Startup companies often take time to become highly profitable, however, and that will require the investor to review the company pro forma to understand the critical factors that will lead to profitability. For example, the company may project it will become profitable when certain key hurdles are reached, such as securing a contract with a major client, achieving a certain level of visits/traffic to the company’s website, obtaining a patent on its key product or securing a license agreement on an existing patent.

The investor will need to decide whether to make a riskier investment before the hurdle has been achieved, or to wait until the milestone is reached before coming on board. That delay, however, may make the investment more costly or unavailable. Once the hurdle has been cleared to profitability, the company may no longer need the investment, or the price of investing may have increased substantially as the company’s value increased. This is a classic risk/reward scenario that the investor will need to carefully evaluate, with input from company management to determine whether the hurdles are legitimately within reach before the investment is made.

Rapid Employee Turnover

When employee turnover is high, this is an important red flag. It suggests that there are a host of problems at the company, including leadership problems, lack of strong company culture and an inability to scale the business over time. Determining the reasons for the turnover require more due diligence to be conducted to determine what types of employees are leaving (are they actual employees or contractors), why they are departing, how quickly they can be replaced and whether the problems that caused them to leave can be fixed.   

High Client Concentration

If the company’s success is pinned to just a small number of clients, that is yet another red flag to consider. If the loss of a single customer would send the company into a tailspin, that makes the investment more high risk. Follow-up questions would therefore include (1) whether the company’s major clients are subject to long-term agreements or whether they have the ability to opt out of the agreement at any time; (2) what is the likelihood that the company can diversify its client base over time; and (3) what contingency plans does the company have, if any, in the event that it were to lose one of its largest clients?     

Relative Access to Capital

The goal of investing in private companies is to secure a robust return, which is based on the future growth of the business. For the business to grow requires it to have access to capital, and a critical question, therefore, is whether the company has the ability to access the capital that it will need to fund its growth curve. This capital could be in the form of borrowing, such as a line of credit, from existing investors who have committed to fund the company’s growth, or from an expected round of additional investors. This additional investment will then have a dilutive impact on the investor’s ownership. The investor needs to consider whether future dilution is a risk worth accepting or whether it should seek anti-dilution protection.

Before making the investment, the investor needs to understand what specific access to capital is actually available to the company. Many companies with potentially bright futures have been derailed when they were not able to access capital at a critical point. By the time that they obtained the necessary capital, other better-funded competitors in the same space leapt ahead and they were never able to regain their traction. If the company is unwilling to discuss its plans for growth and its ability to access capital in the future, that is another red flag. 


Private company investing comes with an inherent degree of risk because most private companies do not stand the test of time to survive past ten years. An investor, therefore, has to be willing to accept a relatively high degree of risk in pursuing outsize returns, but some of this risk can be reduced if key red flags are noted and the concerns that they present are addressed. If the investor’s due diligence confirms that the company’s financial reporting is sound, that its profits are supportable and trending upward, and that it has the ability to secure the capital necessary to fund its future growth, this may be a risk worth taking.