How do I prepare to sell my company?
By Jon Orr, Managing Director, Optimas Financial & Accounting Solutions
If you’re considering selling your company, it’s critical that you’re fully prepared. Poor preparation could cause you to inadvertently reduce the value of company – bringing in less money than the company is really worth.
The goal of your preparation is to reduce the perceived risk for the buyer. Potential buyers face a lot of uncertainty when they’re considering whether or not to buy your company. This uncertainty creates risk in the mind of the buyer. The higher the risk, the lower the price they’re willing to pay. To reduce this risk and increase the perceived value of your company, you need to show that your business is well managed, well documented, and easily understandable. This gives the buyer the confidence that he’ll be able to easily take control after he purchases the company, without any unpleasant surprises.
Here’s what you can do to be prepared:
1. Understand the story your financial statements are showing.
Your financial statements tell a story about your company. You need to understand that story, and you need to be able to explain that story to your buyer. Buyers will ask questions, they’ll identify unusual items, and you need to know the answers before they ask the questions. If you control the story, you can make it as positive as possible.
Understanding the story shows the buyer that you understand your business. You’ll then be able to explain to the buyer precisely why your business is so valuable.
2. Clean up your financial statements.
Collect old accounts receivables. Pay any past due vendors. Get rid of old fixed assets that are no longer used. Make it easy for the buyer to see that your business is well managed. When the financial statements look neat and tidy, the buyer gains confidence in your business.
3. Prepare for the buyer walk-through
Make sure the physical premises look clean. Management and key employees should look presentable, and they should be prepared for any questions the buyer may ask them. Too many business owners keep things too close to their chests and don’t share their vision with their employees and even their managers. Your core team should know your business story, and they should understand strategically where the business is headed and how you plan to get there.
4. Document your business.
Would you consider buying a car without an owner’s manual? At the very least, you’d be concerned about how well the vehicle had been maintained.
The same is true with a business. Buyers will naturally have a healthy dose of skepticism. But if you have a carefully prepared business plan – effectively, your company’s “owner’s manual” – you’ll go a long way to relieving that skepticism.
A business plan shows potential buyers exactly where your business is headed and how you propose to get there. This in turn shows buyers that you understand your business and gives buyers confidence that they can understand your business, too. They’ll know precisely what they’re getting, even if they plan on changing the business plan after the purchase.
A business plan also will document agreements with key parties. Buyers will feel more confident about the business when they know the details of the terms of your relationships with suppliers, customers and employees.
Above all, keep in mind that preparing to sell your company isn’t something you can do in a day! You need to start your preparations as far in advance as you can – six months or even a year or more is preferred. But trust us, the effort will be worth it. Solid preparations will reduce the buyer’s perceived risk, which will increase your company’s perceived value – which means you’ll ultimately get paid much closer to what you were hoping for.
© Optimas Financial & Accounting Solutions
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