Strategies and Tactics for Selling a Business

Prepare to Sell a BusinessYou call a California Business Broker or other business broker to say that you’d like to sell your middle market business ($1M to $50M in sale price). What happens next?

We’ll assume the role of a buyer. This is the safe and confidential way to “test the water” We review your financials, perform a recast, and come back to you with a valuation of what we feel the business is worth based on our experience and knowledge of your market.

We’ll also offer our professional opinion on areas on which you can focus on to increase the value of your business. We’d much rather see you sell for double the price at a later time than accept a low-ball offer today.

Taking the time to prepare for the sale of your business generally leads to a better sale, a much faster close, and a far easier selling process.

What appealed to me right from the beginning about Bowman/Hanson was that they came to me with a clear plan on how we’d proceed instead of simply handing me a list of information to collect. ~ Frank del Greco, Allied Billing Center, Inc.

We Start With Low-Hanging Fruit

Your business must look good to your prospective buyers. Since the first thing they’ll look at is your financial data, that’s also the first place we’ll go. It’s also usually the easiest and most cost-effective way to build value in your business.

For example, you are probably not using what’s called “Twelve Trailing Month Accounting” (TTM). However, that’s how banks typically make loans today, so implementing TTM actually increases the “value” of your business for a buyer because it’s easier for them to get bank loans.

We’re going to review all your accounting issues first, including having “reviewed” versus “compiled” statements, divisional reporting, inventory reporting, and expense and revenue recognition. You can, for example, make your business more attractive overall by separating out the various divisions in your accounting, allowing buyers to see specifically where they have the most to gain or lose.

Compiled financial statements are also referred to as unaudited statements. There is no certified or reviewed examination of the statements, and therefore no guarantees about the accuracy of the data. Reviewed, financial statements have been reviewed by a certified public accountant (CPA). The CPA offers their opinion on the quality and accuracy of the financial statements and performs a comprehensive analysis of the company. Investors can use the reviewed financial statements with confidence when evaluating a company. When financial statements have been reviewed they have been reviewed to ensure the information is correct, true and reliable.

We’ll then run through the same process on your leases, IT, personnel and items that are unique to your business.

These reviews can be fairly quick and can uncover potential problems or issues that would hinder the sale or reduce the value from the perspective of the buyer.

Proceed to the “Cleanup” Phase

M&A Advisors (California Business Brokers) often refer to the preparation process as “cleaning up” your business. This cleanup process can be quite extensive, and if you do everything that’s sometimes recommended, it can take you years.

Rather than give you a laundry list of cleanup chores, we’ll provide a recommended list, starting with the low-hanging fruit, combined with a cost-benefit analysis so that you can determine which tasks, if any, you’ll take on.

Here are a few of the other areas which you may be asked to consider:

  • Assets. There may be assets which you wish to retain, or which your buyer may find objectionable, such as a vacation home, car, or other company-owned items. In fact, this is a good time to create a comprehensive list of all the company’s assets.
  • Clear, clean records. You’ll want to ensure that your financial and corporate records are in good order. Make any year-end accounting adjustments prior to the sale, and make sure that you have up-to-date minutes of all meetings.
  • Trademarks, patents, and copyrights. Along with cleaning your financial records, make a list of all your trademarks, patents and copyrights.
  • Spic and span legally. Be sure to settle any lawsuits and terminate any unfavorable contracts before going on the market. You don’t want to give anyone an opportunity to devalue your business.
  • Clean the premises. While it should be obvious that you’d want to clean and organize your premises, you’d be surprised at how many owners don’t bother.
  • Close agreements. If you’ve got any verbal agreements in place, this is a good time to terminate or honor those agreements. The buyer will see these as a red flag.
  • Issue all stock shares. Again, it’s a matter of making things neat and tidy for a potential buyer.
  • Document all loans. Document all outstanding loans that have been made to or from shareholders and employees.
  • Warranties. Gather information about any service warranties or warranty claims.

And Don’t Forget About Technology

IT (Information Technology) is often an overlooked area when preparing a business for sale. The buyers will want to know that your hardware and software are up-to-date, and able to handle their expected growth.

You may also want to update your website and Internet capabilities. Today, more than ever, companies are using the Internet as an effective marketing and sales tool.

Your goal (and ours) in preparing your business for sale is to place your business in the best possible light in the eyes and minds of the buyers. We look at your business from their perspective, and outline the most effective ways to make your business look better to the buyer.

The result is a significantly increased chance that your business will sell, sell to the best possible buyer, and with agreeable terms for you. A good California business broker can help you with all your preparation work for selling your business.

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