Is Preparation Necessary Without Intent to Sell?

January 23rd, 2018

Why should I prepare for the sale of my business if I have no intention of selling it? Please allow me to be blunt for a moment. Shit happens. Circumstances can quickly arise that are completely out of our control:

  1. The owner and key operator of the business is diagnosed with terminal cancer
  2. An equity partner decides he wants to be bought out and the business can’t afford it
  3. The owner gets hit by that proverbial bus and dies on impact (I said that I was going to be blunt)

Not unlike my 18 and 20 year old sons, most business owners think they are indestructible. They believe that tragedy will never happen to them, so why should they prepare for a sale now? Most likely, these life altering events will never happen to you. More likely, your circumstances change gradually over time, or you will change your mind and decide that you want to sell. This happens very frequently, and, if it happens to you, we recommend that you are prepared. An owner will undoubtedly obtain the highest price and best possible deal terms for a company that is well positioned for a sale. The worst case scenario is a great one. Even if you never sell your business, you’re prepared if your circumstances change, and, by focusing on your business’s performance, your company is better positioned for profitable growth. Think of preparation like buying a life insurance policy. Hopefully your beneficiary will never collect on that policy but you have it just in case.

Preparation starts now by answering the following basic questions:

  1. Are your historical financial statements properly prepared and easily obtained? Five years of history is best. Three years might be acceptable.
  2. Are your historical statements clear, or will the buyer need a roadmap to understand them?
  3. Do you have a current financial statement for this year or, even better, budget-to-actual statement for his year?
  4. Are your client, employee and/or vendor contracts clear, up-to-date, and easily accessible?
  5. Do you have a current organization chart with job descriptions incorporated?
  6. Are you putting off any major capital expenditures?

If you answered yes to questions 1-5, and no to question 6, congratulations, you’re ahead of most owners of privately held businesses. If you did not, we strongly recommend that you invest the time and resources as soon as possible to do so.

Those of you who scored well can rest easier knowing that you are prepared for the sale of your business. You have the necessary pieces in place for a sale, however, it is not yet known if the business is positioned to maximize the value that your estate will receive when it is sold. We have the solution. Last year, Kaulkin Ginsberg Company, in conjunction with our sister company Topline Valuation Group, added the Strategic Valuation Assessment (SVA), a new service designed uniquely for owners and investors of accounts receivable management (ARM) companies. SVAs provide owners with a thorough understanding of value relative to transaction structures and current market conditions, and, unlike formal valuations, is a more strategic tool, used to aid in business discussions and planning to maximize its value long term. The report will:

  1. Breakdown your company’s financial performance in the same way that buyers will look at your business
  2. Offer a detailed explanation of your company’s value in today’s market
  3. Provide an extensive overview of the ARM industry, as well as a synopsis of your company’s specific line(s) of business
  4. Explain the economic impact on your company’s value – a critical driver in any market
  5. Offer recommendations on ways to increase the value of your business

Requesting a SVA could be one of the most valuable strategic decisions you make. Schedule a call with one of our experienced advisors today!

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