How should a company change its operations to prepare for a sale?
From an operating standpoint, business owners should keep their eyes on the ball and continue to operate the business in the normal course when considering a sale. Owners often ‘check-out’ too early and the operations suffer. In other cases, owners start to position the company for sale by cutting back spending in certain areas in order to improve the profitability of the company. Buyers, with assistance from due diligence professionals, will see right through matters like this.
What does a seller need to do regarding its books prior to the sale of the business?
When a company prepares for sale, it is very important to ensure the company’s books and records are as clean as possible to assist with the due diligence process that a buyer will undertake. Many small businesses should consider upgrading to a full audit from a review or compilation and should also consider requesting assistance from due diligence professionals in advance of the sale process. By engaging due diligence professionals in the preparation process, a seller can more fully understand the potential issues that a buyer is likely to raise and can therefore be in the best position possible to deal with them.
How can a seller ensure a smooth transition?
Transition of a business to a new owner can exploit key risks to the business and is often a very emotional time for the seller, particularly when children or grandchildren are involved with the business. At the end of the day, sellers should ensure sound leadership is groomed underneath the owner to facilitate a smooth transition to new ownership. It is not uncommon in smaller businesses for virtually all of the key customer and vendor relationships to reside almost exclusively with the owner. The owner should work to transition these relationships to other key members of the leadership team prior to the sale. Many times, the owner may also need to consider agreeing to continued employment or a consulting contract arrangement to assist the buyer with a full transition of key relationships.
Can owners prepare for a sale on their own, or are outside advisers recommended?
Any owner can prepare for the process without any outside adviser assistance, but most owners turn first to a trusted business adviser such as an attorney or accountant to begin the process. Other advisers that are often a part of the process could include a third-party business broker or investment banker, a tax adviser, a personal financial planner or wealth adviser and a due diligence provider.
If sellers don’t prepare properly, the buyer is going to have the upper hand, and, generally, sellers will receive less value for the business than they otherwise would have.
Scott L. McRill, CPA, is a director in transaction advisory services at SS&G. Reach him at [email protected] or (800) 869-1834.
