Although a business owner may not be
planning to sell his or her company
now, Rick Parent, vice president of Gumbiner Savett Inc., an accounting and
business advisory firm, says owners
should always operate the business as
though they are.
“Everything is for sale at the right price,”
says Parent. “I’ve seen many instances
where business owners say that they are not
going to sell. ‘This is always going to be a
family business, even when I’m gone.’ But at
the right price, everyone’s mindset changes.”
To make sure owners are prepared to sell
when a buyer approaches them with an
offer, Parent says businesses should build a
solid foundation with a strong infrastructure, implement internal controls, establish
sound policies and procedures and prepare
a business plan with financial projections.
“Businesses that don’t have a strong infrastructure leave a lot of money on the table
or can kill a sale because buyers generally
do not feel confident about the integrity of
the numbers when they question the way
the business is run,” he says.
Smart Business spoke with Parent about
how to prepare your business for sale.
When is the best time to sell a business?
The best time to sell a business is when
the owner can obtain the best price. This
sounds simple, but a business needs to be
achieving maximum profitability and the
market conditions need to be favorable for
a sale. Those factors in place will allow for
the highest rate of return for owners.
How can owners maximize the value of their
business and its attractiveness to potential
buyers?
Most well-run businesses go through the
internal process of developing three- to
five-year business plans. If a business
owner envisions selling in the next few
years, a business plan and financial projections are necessary for a prospective buyer.
Once a business plan is created, it is best to
have the financial statements audited or at
least reviewed. Unless required by lenders,
many companies do not have their financial statements audited or reviewed.
However, most buyers of businesses will
require that historical financial statements
be certified by an auditor to validate the
reported historical earnings, which are typically used for deriving a purchase price.
This will allow for a maximum purchase
price for your company because critical
financial data will be in the format needed
for proper due diligence in establishing the
value and price.
It’s very important to have good advisers
— an attorney, an investment banker and
an accountant — usually obtained through
a referral from a trusted friend or business
associate. These advisers need to understand the business and be positioned to
provide the necessary level of service for
the business profile. Using an investment
banker as an example, you wouldn’t necessarily want to get the biggest investment
banker and end up being a small fish in a
big pond. Rather, you should find a banker
who specializes in your industry and who’s
best suited for your business.
Once advisers are in place, how will they
help the business?
Advisers will help owners refine their
business plan and get the financial statements in place. You want to create a situation where, when a prospective buyer
expresses an interest in the company, the
buyer’s due diligence process is seamless
and, in a sense, turnkey. Having everything
ready for a buyer — the analyses and historical as well as forward-looking statements — can create more value.
Businesses with good business plans,
projections and audited financial statements, as well as solid internal controls
and procedures, generally receive the highest sales offers.
How will sales contracts add value to a
company?
Long-term customer contracts can be a
value-add for a prospective seller. Termed
‘backlog,’ the value of the backlog (total
contractual revenues) validates the revenue projections. Customer contracts are
typically found in industries such as software, contractors and entertainment.
How will employees help an owner prepare
for a business sale?
A business owner should invest in qualified personnel to manage the various
departments. Their worth to the company
is invaluable, not only during a sale but on
a regular basis. Many entrepreneurs underplay the importance of hiring a professional financial staff. The CFO or the corporate
controller is the linchpin to establishing
and monitoring internal controls. He or she
is responsible for ensuring that policies
and procedures are properly documented,
that there is segregation of duties and that
key controls are in place to prevent fraud.
A business owner should include the key
department heads in the sales process and
financially reward them from the success
of the sale.
Knowledgeable, qualified department
heads, along with a solid foundation and the
right advisers, are key to preparing a business for sale. The amount of the sale price is
likely to increase if owners invest upfront in
establishing this infrastructure.
RICK PARENT is vice president of Gumbiner Savett Inc. Reach him at (310) 828-9798 or [email protected].
