Preparing your Company for Sale

As has been mentioned earlier, when you are considering the potential sell of your business, it is very important to spend the time necessary to polish your company’s image to present it in its best light. While I realize this sounds pretty obvious, it is easy to rush your company to market without considering all of the various aspects that may have an impact on how potential acquirers view your business. Spend the necessary time to do this right and it will reward you with greater interest and a higher value. Do it improperly and it may very well result in a decreased interest in learning more about your company dropping potential buyers from your pool and lead to a lower purchase price for your company.

Obviously, there are several factors that impact your company’s value and not all of them are based on your company’s stated financial performance. For example, just look at your financial statements. From your perspective as an on-going business, the last thing you want to do is pay a larger amount of your earnings in taxes than is necessary. Which means that you will do all you can legitimately do to minimize profits. Obviously, that makes perfect sense when you are not contemplating the possible sell of your company. However, by taking such an approach and not making the appropriate adjustments to your financial statements prior to the marketing of your business, you will not provide potential buyers with the optimal picture of your company. One of the areas to explore within your financial statements would be discretionary expenses defined as expenses not inherently necessary to operate the business. This category could include items such as personal health and life insurance policies the company maintains, car expenses, travel items and entertainment expenses to name just a few. Other areas to review could be inventory write-downs, overly aggressive bad debt write-offs and accelerated expenses.

Another area to pay special attention to is your real property arrangement. Whether you own the property or simply lease it, it is always a good idea to have a lease in place that allows for the business to continue at its present location for a significant period of time. Obviously, there are exceptions to this statement but, in general, this is an issue that will be closely reviewed by the buying party along with any source of funding that may be utilized. The majority of buyers will want to operate out of your existing facility and not incur either the cost or disruption associated with relocation. The best option is to arrange for lease extensions at the end of the current term. This allows for the most flexibility for the buyer. However, if you are the landlord, then you want to put in place a lease that is consistent with the present rate but covers reasonable adjustments moving forward.

This will help to minimize the buyer’s likelihood of attempting to negotiate a new lease under terms more favorable to the acquiring party and remove a possible stumbling block to the consummation of the transaction. This could cost you a substantial amount of money if not addressed at the proper time. But, as with most things, be sure to keep your lease within the parameters of comparable properties in the area.

Some other areas to examine:

1. Employee composition – if you have key personnel that need to remain with the company after its sell, give this some thought. While you can’t promise anyone will stay with the company at any time, this will raise its head and need to be addressed with the buyer so be prepared. On the plus side, if you have a history of strong employee retention among your staff, this is a great item to point out to potential acquirers.

2. Growth potential – if you are aware of any areas of growth that hold value, be sure to highlight them when presenting your company. But, also be prepared to explain why you have not pursued these growth opportunities yourself.

3. Physical aspects – a couple of things of importance here. One, take a look around your facility; does it need a little tender care whether its painting or simply getting rid of long ago discarded equipment or inventory? Take a little time to view your company with fresh eyes. Secondly, a buyer is going to want to know what limitations will be faced when they take over. They will need to know what the facility will support as far as revenue is concerned as presently equipped. Also, if additional equipment is acquired, at what point will the facility max out its ability to produce revenue from a physical perspective?

4. Patents or Proprietary Items – if the company holds any patents or proprietary processes, be prepared to document these items.