Buyers aren’t the only people investigating businesses for sale. You should investigate your own company, carefully planning for the sale well before it becomes a reality and implement measures where needed to remain competitive and optimize your company’s value. Inaccurate books and tax records, lagging profits, and weak or poorly developed management can all depress value and tank a business sale. If you’re considering selling within the next few years these simple strategies can help you get the most out of the process by helping to ensure a successful sale.
Know What Your Business is Worth
An independent evaluation by a qualified M&A advisory firm can offer a realistic estimate of your business’s current and potential value. They can also review your business and how it compares to the competitive landscape it faces. This outside advice can help identify initiatives to better position your company for a more successful sale and point you toward strategies that can increase your company’s value.
Clean Up Your Books
Buyers want total transparency, timely and accurate information. They will carefully evaluate financials to make a decision. You can avoid sending up red flags by working with an accountant or qualified M&A team to develop and present clean financials and tax returns that date back at least three years and adjust your financials for extraordinary items and excess owner compensation and benefits. Be prepared for buyers to ask for results for current and previous year-to-date financials.
Have an Exit Strategy Ready
It’s never too early for an exit strategy, regardless of any intent to sell. An unexpected change, such as an ailing owner or family members who don’t want to purchase the business, can compel small business owners to sell at a time when value may not be optimized. Having an exit strategy in place and managing the company such that it can withstand a value loss of an owner is critical to preserving value.
Potential buyers want to see steady improvement. After all, they are envisioning themselves at the helm, want to minimize risk and increase value by capitalizing on opportunities. Buyers may become skittish if a single customer comprises more than 20% of revenues. It’s helpful to diversify your customer base, and boost sales by having a structured marketing initiative. Demonstrating and proving predictable and recurring sales can significantly improve a company’s attractiveness and value.
Evaluate Operating Systems
Update and install operating and reporting systems where needed, which may include customer relationship management, financial reporting and operations and logistics systems. Not only will this add value to the company but you may also find that having more and timely information readily available will provide tools for more effective day-to-day management of the business. It may also help identify weaknesses, such as stale or bloated inventory, which should be cleaned up.
Work With a M&A Firm
No matter how great you are at running your business, you are a novice when it comes to selling it. This is one of many reasons to seek outside help. An M&A advisory firm (also called Investment Banking firms who specialize in selling companies to strategic and private equity buyers) or business brokers (who typically list smaller companies for sale to individuals) have the expertise to create a competitive process for would-be buyers to consider a purchase. They can also help you assess your company’s value and keep you free from distraction, so you can remain focused on running and growing your business. These sale support experts should increase value by managing a structured, competitive process; a worthwhile investment before signing a final purchase agreement.
Clean Up Your Contracts
When selling a small business, there are a myriad of considerations. Working with an attorney to review and clean up material company contracts long before beginning a sale process can avoid many problems. Amending and renewing expired contracts, to ensure that they are assignable, are just a few examples that can avoid future difficulties during negotiations.
Seek advice from a skilled M&A firm before signing on the dotted line. Otherwise, you could be signing your life—or your money—away.
About Windward Advisors
Windward Advisors, LLC is a sell-side, buy-side, capital raise, and corporate growth advisory firm. Windward specializes in helping business owners better prepare their businesses, with the intention of increasing shareholder value by providing strategic planning and corporate growth advisory services, and by representing owners in the execution of sales, acquisitions, and financial structuring transactions. Windward is an advocate of ensuring that business owners are knowledgeable about their alternatives and we work closely with other trusted advisors to assist owners with properly preparing before pursuing transactions.
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