By Brad Buttermore
Managing Partner and CFO
Art of the Deal is an occasional series about the steps involved in selling your business.
Selling a business takes preparation that starts at the beginning, with organizing, funding, building and running the company. If you are thinking about selling your company this year, here are five things you should be thinking about now to prepare for a sale down the road:
- Know your objectives. Why are you selling? Are you retiring or making another lifestyle change? Do you want to diversify your net worth? Is the company growing beyond your ability to lead it to the next level? Is the company struggling? Knowing your objectives and expectations will help you prepare for the sale and accomplish your end goal.
- Select an advisory team. You’ll want to hire a team knowledgeable about mergers and acquisitions to guide you through the selling process, which can be a stressful and time-consuming distraction from day-to-day business operations. This team likely will include an investment banking M&A advisor, who will act as an intermediary to guide you through each step of the selling process, including preparing your business for the sale and finding potential buyers. Your team will also include internal company officials such as the CFO, who will allocate resources and coordinate the review and production of information.
- Get your financial books in order. A potential buyer will want to see three or more years of financial data to evaluate your company. Financial statements should be accountant-prepared or audited, to carry the most weight with potential buyers. Thoughtful and competent reporting on a monthly and annual basis of key performance indicators (KPIs) that show growth opportunities and a sales pipeline can help increase your company’s value to prospective buyers.
- Get your legal house in order. Business formation documents, customer and vendor contracts, insurance policies, licensing agreements, property or equipment leases, employment agreements, tax returns and other important business, legal and financial documents should be reviewed, updated as necessary, and made available to potential acquirers. You’ll want to have a non-disclosure/confidentiality agreement prepared for prospective buyers to sign before releasing confidential documents for due diligence reviews.
- Understand the proper market value for your business. Business owners may have an unrealistic view of what their business is worth. We recommend a market-based valuation early in the selling preparation period. Your M&A advisor can help you with this valuation and can suggest strategies to improve the company’s value and attractiveness, thus putting you in the best position to obtain the maximum return on investment.
Getting ready to sell a business takes time to do it right. Laying a proper foundation is vital for sellers who want to get the maximum return on their investment. That includes examining a business’s strengths while also identifying weaknesses and taking action to address deficiencies. We believe this evaluation and preparation period is time well-spent. Are you thinking of selling your business in 2020? Now is the time to get ready.
Capital Alliance Corporation is a Dallas-based investment banking firm with a four-decade history and deep operational and M&A experience across many sectors, including human resource management, upstream energy and energy infrastructure, among others. Capital Alliance is affiliated with Oaklins International, the world’s most experienced mid-market M&A advisor, with 800 professionals globally and dedicated industry teams in 40 countries worldwide. We have closed over 1,500 transactions in the past five years.