For your business, there are many questions you need to ask yourself when deciding whether or not you are ready to sell and undertake an M&A transaction. The obvious questions will run through your mind. Am I ready to retire? What does my future hold after the sale of my business? How will my employees react to new ownership? This list goes on and on, your mind will be racing with so many important questions, all valid and important to consider. With that being said there are higher priority questions that will need to be answered in order to determine if you are truly prepared to start the process of marketing your business for sale.
Preparation is key to ensure a smooth business sale process. Lack of preparation can and in most cases will result in costly last minute “haircuts” to the value of your company and the purchase price. “Those who fail to plan, plan to fail”. – Warren Buffet
Below are some check points to consider when measuring how primed and ready your business is for sale:
How does your financial record keeping stack up against other
top notch acquisition targets?
What best describes your accounting practices? ( Do you hand your accountant a stack or receipts? Do you use a program like Quickbooks or Simply Accounting? Or do you have your CPA conduct a review engagement every year?)
The cleaner and more transparent your books and records are, the more corporate value it will add and the easier it will be to sell your company to a strategic of financial buyer. We highly recommend an annual review be completed by your accounting firm.
Do I have the right management team in place?
One of a company’s biggest assets is it’s people, buyers want to know that your staff is committed to maximizing the wealth of the new or pre existing shareholders. Another staff related consideration is structure of your management team. If you don’t already have one put together, an organizational flow chart showing the chain of command will boost value as well. If there are any gaps that prevent your organization chart from flowing properly you may want to consider filling that gap. Over reliance of day to day operations by the President/Owner is not at all conducive to your success in selling your company for the best price and terms. Buyers want a business that is self-sufficient with strong management that is capable of operating efficiently with or without the owner present.
How strong is my brand?
Image is everything and for a reasonable investment can be polished if it is outdated or just simply not appealing according to today’s digital internet standards. Start with your website. Was it built 10 years ago when the internet first started gaining traction? Web developers have come a long way and a newly updated website is absolutely necessary. Social media accounts are a must, don’t just develop them but task someone on your team with managing the content. Remember that prospective buyers are going to “Google” your company name, make sure that your company shows up and that the content is positive.
Are the company financials in order?
We cant stress this value driver enough! The most painful (doesn’t have to be) portion of the acquisition process can be reviewing financials. Buyers are going to want to go back 5 years in order to determine the valuation you have placed on the business is fair and reasonable. If you don’t have a CPA on staff seek help from an outside source to review or audit your records and ensure they are in line with generally accepted accounting practices. Transparency will be key when reaching this part of due diligence with the buyer, but you must be forthcoming with information to gain trust. Strong financials help us (Business Brokers and M&A Advisers) to recast or adjust your income statements and “paint the most profitable picture” for your business.
Is now the right time to sell?
If you have owned your business for a long period of time no one knows the trends better than you. With the average business sale taking 9 months to consummate, try to plan accordingly. You will want your business to be thriving during the negotiation period and when buyers are in your offices. Nothing gets a buyer more excited than to see a business in motion with profits pouring in. If your business is cyclical they will know by reviewing your financials, but booming sales during the acquisition process is always a plus.
Depending on the size of your business the preparation for maximizing your valuation can take months if not years, there are many elements associated with this process. The points above are things that you as an owner can immediately seek out and improve. Just remember, this is your baby and most likely your largest asset. You owe it to yourself to make one last hard push and walk away knowing that you did everything within your power to maximize its value. We at BAE are only a phone call away from guiding you unobligingly through the business exit planning process.
New York/New Jersey Office- (646) 737-5273
South Florida Office- (772) 323-8525
Business Acquisition Experts Top-Producing Business Brokers
Written by Shane Mullan: Senior Vice President-BAE of South Florida