Your life’s work has been devoted to building a successful business. Your company may represent the largest asset in your portfolio. Whatever your future plans, it is in your best interest to assess whether or not your business is ready for sale. Is your business in a condition to ensure the best financial outcome should an opportunity arise? If not, there are steps you can take to prepare your company for sale.
1. Determine Your Company’s Value.
Obtaining a realistic idea of what your company is worth from an objective, outside source is an important first step in preparing for a potential sale. A professional valuation will give you a basis for gauging buyer offers and will also provide an assessment of the company’s market position, financial situation, strengths and weaknesses.
2. Ensure Your Financial Information is in Excellent Condition.
Are your accounting records and financial statements up-to-date and organized? Financial statements and historical financial statements are essential to providing an accurate assessment of your company’s financial position and performance. You should have at least three years of historical statements, balance sheets, cash flow statements and tax returns available for prospective buyers.
3. Demonstrate Growth Potential.
You should be able to demonstrate the future growth potential of your business and your competitive position within your industry. How will your business expand over the next five years? Where will new sales come from? How well do you know your competitors? How does your business differ?
4. Address Employee Issues.
Your key employees play a critical role in the ongoing success of your company. A team of well-trained, highly-motivated, experienced and appropriately compensated employees also sends a positive signal to a buyer.
5. Evaluate Facility and Lease.
A poorly maintained facility suggests that you may not have been investing in your company for the long term. Review your lease and maintain a positive relationship with your landlord.
6. Focus on Inventory.
The way in which you handle inventory can make or break a potential sale. Do you have accurate inventory records? Do you have obsolete or slow-moving inventory that should be sold to a liquidator before the sale?
7. Assemble a Team of Experts.
The sale of your business is not a transaction that you should handle on your own. A team of professionals including an accountant and a transaction attorney can guide you through the process, allowing you to focus on the ongoing operation of the company.
Contributed by Gretchen G. Naso, CVA, MBA, a principal in RKL’s Business Consulting Services Group. As a Certified Valuation Analyst, Gretchen has extensive experience in general and family limited partnerships as well as valuations for finance reporting, purchase price allocation and gifting and estate tax purposes.