Business owners often wait until they’re ready to sell to begin planning their exit. But insufficient planning now can cause your business to lose value when you’re finally ready to exit. These six steps can help you prepare your business for your departure.
- Incentivize key employees. Managers who are not shareholders may create significant conflicts of interest during a sale. Incentivize them to stay with the business and support the sale by putting into place a bonus or stock options. You’ll save time by preventing last-minute power plays, and you’ll ensure you can offer a buyer a group of skilled managers who are fully invested in the success of the company.
- Hire key advisors early. Strong advisors confer massive value on a sale. Indeed, in most cases, your advisory team pays for itself. Nurture a relationship with an M&A advisor you trust, as well as a strong legal team and a trustworthy accountant. Choose people with deep M&A experience, not a family member or a general practitioner. By hiring them early, you ensure they have the necessary insight to shepherd your business through a successful sale.
- Be prepared to show high profits. Many private companies do all they can to minimize taxes. Selling a company, however, is all about profits. You need to show a buyer the highest profits possible. Cut expenses that aren’t critical to operations a year or two before selling. You may miss out o the tax write off, but the increased sale price should more than make up for the loss.
- Get your books in order. Your finances are key to assessing your company’s value. Yet many companies have disorganized or nonexistent books. This destroys the credibility of financial projections, and scares away buyers. You need at least the last two years of your financial statements audited by a reputable accounting firm, not the in-house CPA or a friend. Doing so gives you time to correct any weaknesses the accountant identifies, and ultimately lends credibility to your projections and reports.
- Get your house in order. Curb appeal doesn’t just apply to the physical building in which you operate. Having records that are kept in disarray can also be an unattractive deterrent. Buyers penalize sellers who take too long to respond to requests, or who drag out due diligence. Get your files in order now, and ensure they are an accurate and current reflection of your operations. Be sure to note any special clauses or provisions, such as those governing change of ownership, that might affect a sale.
- Build a plan for growth. The most valuable company is one that is constantly growing, showing a steady increase in revenues. Buyers are not interested in a business that is stagnating or declining. They demand innovation—and the increased profits that so often accompany it. You must be able to show three years of probable growth following the sale. These projections will be much more credible if your general trend has been one of growth, and if your projections come from the analysis of a reliable unbiased outsider.
Wilcox Investment Bankers is a boutique investment bank specializing in providing merger and acquisition and corporate finance advisory solutions to owners of distributors, manufacturers and services companies that operate within the energy and industrial sectors.
Clients are typically owners of privately held mid-market businesses with revenue of $20-$250 million, who are at a critical point and need thoughtful, candid financial advice.
Many of our transactions relate to advising clients on mergers and acquisitions and company sales, acting as sell-side M&A broker. Additionally, we provide litigation consulting, expert testimony, corporate finance/capital raising, fairness opinion and board advisory services.
Clients hire us because we are a trusted advisor, providing high quality advice, individualized professional service, transaction experience, rigorous deal execution and industry knowledge. We value trust, honesty and integrity and believe it’s vitally important to walk the talk, to do what we say we can do and to be transparent in our dealings. We achieve excellent results – our track record and references speak for themselves.