DATE: April 02, 2017
There is much more to analyze than the bottom line of a company when preparing for a sale. Consider the ten actions below to be best positioned for earning a maximum valuation when taking the business to market.
Or, view our infographic on this topic.
1. Assemble a Top-Notch Management Team
Buyers are interested in acquiring talented individuals, with a long-term outlook, capable of operating the business and maintaining the customer relationships.
2. Choose Appropriate Legal Entity
S-Corps and LLCs provide the best options when selling a business. With proper planning, a C-Corp owner can benefit by making an S-Corp election that will minimize/avoid double taxation.
3. Manage the Balance Sheet
Properly managing the Balance Sheet will enhance the value of the business and should keep more dollars in the hands of the owner. Keep cash, receivables and inventory to sufficient minimums and receivables and inventory current; extend payables to allowed maximum; minimize interest bearing debt; and provide the business with necessary facilities/equipment to operate optimally.
4. Develop an Attractive Customer List
Buyers are wary of companies whose top two or three customers make up a very large percentage of total sales. Reducing dependence on any one or two customers minimizes risk and adds value. Diversifying the customer base across different industries does the same.
5. Create an Aggressive but Attainable Growth Plan
Expected future performance is a factor influencing business value. Create a believable growth plan identifying the areas of growth (geographic, new product, new customer) and the resources (people, capital, time) necessary to achieve that growth.
6. Maintain Clean Financial and Accounting Records
Buyers pay for what they can measure. Transparent financial and accounting records, including owner adjustments, substantiate claims of successful performance and support a higher valuation.
7. Integrate Proper Information Systems
The ability to efficiently and accurately produce current and historical information on customers, suppliers, employees and product and labor costs will add credibility to the story of the business and support the momentum necessary to close the transaction.
8. Transfer Tribal Knowledge
If the owner plans to leave the business at the close of the transaction, they should transfer their knowledge of critical business operations and relationships to key members of the management team. A goal of an outgoing owner should be to make himself or herself irrelevant to the on-going success of the company.
9. Recognize Appropriate Timing
An owner’s personal timeline to exit the business often doesn’t correspond perfectly with ideal macroeconomic and industry conditions, favorable M&A dynamics and the company’s performance peak. Having the business ready for a sale will help an owner maximize value at time of exit, regardless of external factors beyond the owner’s control.
10. Build an Expert Exit Team
The sale of a business is likely the most significant economic event in an owner’s lifetime. Owners devote years building value, but typically only go through a sale process once. Having a team of advisors experienced in ownership transition helps them preserve the value they have created by maximizing after-tax proceeds.
Hiring an Investment Banker with a proven track record of expertise, an understanding of the process and access to the market buyers is essential to maximizing value. Teaming with an experienced M&A attorney, solid tax advisors and a wealth manager that has a strategy to invest the proceeds creates an exit advisory team that covers all critical aspects of an exit process.