Doing the groundwork for the sale of a business can be a challenging process for owners. Although there is no one size fits all solution to help owners prepare for a sale, meticulous preparation is vital. Primarily there are four areas to focus on
- Valuation – A professional valuation will give the owner a realistic idea of what a business is worth. There are many ways to calculate the value of a company. I recommend using at least three different methods: discounted cash flow, liquidation value, and completed to transaction comparable. It is also important to understand a potential buyer’s attitude towards the value of the business. A strategic buyer is interested in the operations, whereas a financial buyer is looking at medium-term returns.
- Legal – It is important to get all the legal paperwork in order. Make sure they are all readily available and are current. Here is a list of some of the legal items to get you started: Charters and bylaws of the company, list of all employee benefit plans, patents, any items related to intellectual property (including licensing agreements), list of all real property owned, any threatened or pending material litigation and privacy policies.
- Financials – We recommend having at least reviewed, if not audited, financials for the previous three years. Once you have your books in order, the owner should highlight key financial metrics and demonstrate their relevance. The financial picture can tell a compelling story about the future growth of a company.
- Markets – What are the key differentiators of your business? What is it that will make it attractive to buyers? Do you have a stellar sales team? A key technology? a great location? Focus on these areas to enhance the value of the company and increase the likelihood of “deal certainty.”
Bonus – To achieve a successful sale of a business, the planning process should begin well in advance.
