How to Prepare for a Sale This Year
Regardless of the industry trends and macro-economic market conditions, selling a business requires thoughtful preparation. Making strategic adjustments to your business before it is on the market can help increase value and set the stage for a smooth sale. Before rushing into an exit, consider preparing your business in following areas.
Proper Accounting for Owner Expenses
Business owners often operate their business with a dual aim: maximize earnings and minimize taxes. While this mindset may make sense now, potential buyers may take issue. To avoid your business appearing less profitable than it may actually be, it is advisable to normalize expenses prior to selling. By understanding buyer goals and key decision criteria surrounding your balance sheet, you can make the necessary changes in the company’s accounting, and in turn increase buyer confidence while boosting your own credibility as a seller. Talk with an advisor or tax professional on tax issues, owner income, restructuring and other financial and tax questions.
Preparation of Documents
Ultimately, you will need to be able to provide potential buyers with evidence of relationships with customers, vendors, landlords and other third parties. Take the time to organize all documentation of contracts and important records. A full understanding of your business’s financial history is also critical.
Ensure that you have clean financial records that align with the story you plan to communicate to prospective buyers.
In addition, be sure that all licenses and contracts are up to date. There is a direct correlation between valuation multiples and recurring revenue; it is well worth the time to have contracts in place with as many customers as possible. Most importantly, make sure there are no surprises in your data. If there are any red flags, be proactive and address them now, before buyers become involved.
Know your Value
A potential buyer’s valuation of your company rarely matches your own. Before engaging buyers, it is important to know exactly where your business stands and at what price you are willing to sell. Avoid being taken advantage of by having a strong understanding of key performance indicators. In the end, your company’s value is what another company is willing to pay for it. Knowledge of industry trends and multiples, along with data to prove your company’s financial track record and future growth potential will enable you to sell your business for its true value.
Include a Plan for Your Future
It’s important to have a clear vision for the future of your business, but it’s equally important to know what you want for your own future. Are you looking to sell because you want to start a new venture, or are you ready to ride off into the sunset and retire? For some business owners, staying on and working in a revised role under the acquiring company is an attractive option. Buyer motives vary – certain buyers will only be interested if the original executive team remains intact, while others may prefer to start fresh with their own leadership team. No matter your situation, it is essential to be upfront about your post-sale intentions.
Enlist the Help of Professionals
Running your business while attempting to manage a deal process alone often results in a failed transaction. What’s more, going to market without a professional valuation can create a convoluted understanding of value and complicate negotiations.
Having seasoned professionals who know the market on your side will not only make the process easier on you, but also give you a better chance at completing a deal at a price you will be happy with.
Choosing a qualified, experienced M&A advisor with relevant industry experience in is crucial to a successful deal.