Having your business in good order before presenting for sale
Potential buyers are attracted to your company because it has valuable products and services and they believe that they can run the business as good as or better than you do. The price they will pay can be based on any number of factors both quantitative and qualitative. There are critically important factors that the buyer will want to know about early in the process to help them formulate an offer. Most of these are the areas where your expertise about your business will be key input to the process of presenting your company in the best light. These matters will take much of your time and energy but are usually necessary and worthwhile. The there are other matters that should be addressed long before you present your company for sale. You should walk through the following list with your CFO, Controller or Advisor. These are all items that a potential buyer, understandably, would expect to be in good order. If they are, they will keep buyers interested and help enhance the value. If not, they will distract the buyer and detract from the perceived value of your company.
Reasonable expectations of buyers:
• Receivables tie out to the GL, are well supported and current. Issues are identified and necessary allowances have been made. Clean them up before you show them to anyone.
• Inventories have been recently (and routinely) counted and valued in a consistent, controlled and competent manner. The buyer will usually assume they are overvalued. Don’t convince they are correct.
• Plant and Equipment are identifiable and well maintained with good service records. No obsolete or unusable equipment should be clogging up the plant.
• Intellectual property is protected with patents, trademarks, copyrights that are defended.
• All liabilities are disclosed or booked. There should be no surprises.
• Transactions with related parties are arms-length and disclosed up front. You don’t want the buyers discovering these matters.
• Ownership is unencumbered and clearly documented. Are there any written or oral equity sharing commitments?
• Financial statements are timely, complete and accurate. Late, confusing finanicals are a leading cause of buyer angst and price reduction.
• IT systems are appropriate, secure and currently maintained. If the buyer expects that they will need to upgrade systems, they will usually reduce the price accordingly.
• All activities need to be compliant with all laws and regulations. Ignorance of the rules indicates lack of honesty, integrity and or competence.
• Timely filed tax returns. Extended returns are common. Timely returns are a pleasant surprise that can help build confidence with the reported results.
• Compliant with credit covenants. Finding out the you have your creditors threatening to pull your credit can seriously compromise your bargaining position.
• Compliant corporate governance is one of the most overlooked areas that can blow up deals.
If you are uncomfortable with your findings from this review, you should
Many would refer to the above as advance due diligence. I call these basic good business practices. Regardless if you are thinking about selling your company or not, getting on top of these matters will enhance the value of your company.
If you need help navigating through this list and developing an action plan, contact me at 916 905 5935
or firstname.lastname@example.org and I will be happy to discuss performing a no-charge Discovery Analysis .