Considering selling your business? Before stepping into the world of mergers and acquisitions, there are several preliminary tasks that can give business owners a competitive advantage. Going into the sale process armed with accurate and clear information about your business allows you to proceed from a position of strength.
Here are some steps to help you assess the attractiveness of your business to potential buyers.
1. Review financial performance.
It is important to look back before moving ahead with a sale. Take a look at your past financial statements and recast them to remove non-essential, non-recurring or unusual expenses. This gives you a standardized and organized way to examine the operational results, recent trends, historical data and cash flow generated from operations. Any potential buyer will conduct this type of analysis, so getting a sense ahead of time of your business’ “value proposition” can be an advantage going into the marketplace.
An experienced business valuation professional can help by standardizing this information in a clear and efficient manner, as well as identifying trends or other relevant information to provide deeper insight into the appraisal. Leveraging an outside expert also brings the benefit of a “fresh set of eyes,” which is critical to an honest and thorough evaluation of any business.
2. Develop forward-looking financial projections.
Once you’ve established your business’ history, it’s time to look ahead. Fleshing out financial projections based on the current status of operations will give you (and buyers) a sense of what to expect after the purchase. It’s important, however, to document the key assumptions you used in developing the projections and be sure to present all the information in standardized format.
3. Gather relevant industry and market activity data.
We all know that businesses don’t exist in a vacuum, so it’s also critical to understand what is happening in your industry. Researching recent activity and trends in the marketplace can help you find out what buyers are paying for similar businesses, who is in acquisition mode, and if there are any other potential interested parties you should be considering. All of this information and data is useful intelligence that can help shape your game plan for a potential sale.
Carrying out the research tasks above will leave you fully prepared for meetings with potential buyers. Knowing what to say and what not to mention, deciding what information to provide and in what format and making a good first impression are essential to maximizing the deal price. After all, when preparing your business for sale, knowledge most definitely is power.
Contributed by John S. Stoner, CPA, CVA, partner and leader of RKL’s Business Consulting Services Group in the Lancaster office. John provides a wide range of business consulting services, including business valuation, financial analysis, litigation support, merger/acquisition assistance and business succession planning.