Getting the Business in Order before a Sale is Contemplated

January 9th, 2017

Come on, admit it. The sale of your business crossed your mind over the holidays. You may have even discussed what your life would be like after a sale with friends or family. It’s natural for owners to think about selling their business. If you plan to sell at some point in the future, the question you need to answer is, “how well positioned is your business for a potential sale?”

From our vantage point as advisors on buying and selling businesses, we find that the vast majority of businesses aren’t ready for a sale when the owners are ready to cash out. Preparation for a sale, ideally, is completed over the course of several years, and starts with making sure the company’s financial house is in order. Here are four critical components to this process:

  1. Maintain a complete set of financial statements that goes back at least three years. This includes a balance sheet, income statement, and statement of cash flow.
  2. Keep your financial information updated through the most recent completed month, along with a budget-to-actual statement for the remainder of the current operating year.
  3. Understand the numbers and be prepared to explain where the company is heading by establishing a multi-year forecast with defensible assumptions.
  4. Prepare and detail the components of normalized financial statements. These must clearly and objectively depict the company’s normalized operating income over, at least, the most recent 12-month period. To create an adjusted income statement, add back any true one-time or nonrecurring expenses to net operating income.

The question whether a company should have audited or reviewed financial statements typically gets asked when a sale is being contemplated. Preparing an audit or review depends upon a number of different factors independent of a sale. For example, large clients or lenders may require the company to maintain audited statements. When it comes to a sale, we don’t suggest you change your financial statements. Instead, we encourage you to make sure you have a complete set of current financial records that you can readily provide to a prospective buyer.

In addition to financial preparation, owners should allow enough time to address the following potential problem areas that may exist within their operation:

  1. Long-term lease obligations.
  2. Staffing gaps and any lingering personnel problems.
  3. Potential and existing lawsuits.
  4. Client matters such as renewing contracts.
  5. Capital expenditures and infrastructure inefficiencies.

Owners should also take the time to accurately pre-qualify prospective buyers. Before releasing any confidential information, a seller needs to be certain the buyer has an interest in their particular type of business, as well as the financial ability to complete a transaction. If an owner doesn’t maintain confidentiality when selling their business, irreversible harm can be inflicted upon the business that may negatively affect the price and/or terms of the deal. Additionally, if outside financing is needed, a seller should try to determine the buyer’s requirements in advance of disclosure.

Before entering into discussions with a prospective buyer, it is critical for owners to gain knowledge of how transactions in their particular market are being priced and structured. This could be accomplished by confidentially reaching out to other owners who recently sold their businesses, or by engaging an expert with extensive valuation and transaction experience to conduct an objective valuation assessment of the business.

It’s never too early to start preparing your business for an eventual sale. If you would like to confidentially speak with a member of our team, please send us an email at hq@kaulkin.com.

Comments are closed.

LATEST BLOGS

Options Abound for Sellers of Lower Middle Market Businesses

July 18, 2017

There is no shortage of buyers for a selling company in the lower end of the middle market. Sorting through all prospective buyer candidates to find the very best for your business is a challenge that any owner shouldnt take lightly.....

» see this post    » all posts


Changing with the Times: Cybersecurity in Collection

July 13, 2017

Collection agencies have a lot of valuable information that hackers are looking to get their hands on. Are you protected?....

» see this post    » all posts


Is Your Business Prepared for a Sale?

July 11, 2017

Preparing a business for a potential sale is not only a defensive move that an owner can take, but it is also prudent to business. Here are a few ways to make sure you're prepared.....

» see this post    » all posts


RECENT ANNOUNCEMENTS

Kaulkin Ginsberg Moves Its Market Intelligence Online

June 8, 2017

Kaulkin Ginsberg is changing the way busy owners, executives, and senior leaders access strategic market intelligence with the launch of KG Prime. KG Prime is a comprehensive and easy to use web-based service that provides users with economic, market segment, and other forms of strategic research.....

» see more




AXIAL FORUM - Publishes "Succession Planning - A Critical Missing Element in Many Family-Owned Businesses"

June 7, 2017

AXIAL FORUM, a web-based strategic mediator for the M&A industry, recently published an article succession planning by Topline Valuation Group. This article was co-authored by members of the Topline Valuation Group and Kaulkin Ginsberg team....

» see more




ACA of Texas Publishes "Three Critical Healthcare Industry Trends for Outsourced Business Services" in its Winter 2017 Magazine

March 16, 2017

The ACA of Texas Publishes "Three Critical Healthcare Industry Trends for Outsourced Business Services" by Kaulkin Ginsberg in its Winter 2017 Magazine. Kaulkin Ginsberg details its belief that the growth in patient lending and financing programs, clinical integration networks, and physician quality reporting systems for the Centers for Medicare and Medicaid Services (CMS) could have profound effects on companies focused on servicing healthcare providers in 2017 and beyond.....

» see more