maximize the sales price of your business in 4 easy steps

Congratulations!  You’re thinking of selling the business you worked so hard building.  You might be feeling excited, anxious, or even overwhelmed at the thought of making this big life change.  It doesn’t have to be a painful process.  Creating a smoother and more profitable sale comes down to four manageable pre-sale steps – planning ahead, scrubbing your data, comparing to the market, and outlining your future state.

Let’s start with the most important one – thinking ahead!  If you’re approaching retirement age, or are just ready to do something different, the further ahead you can plan your exit, the better.  And by planning, we mean 3-5 years in advance.  This may seem excessive, but the decisions you make today about things like expanding operations, changing your debt structure, or adjusting the cash you keep for working capital, will affect your financial projections for years to come.  When you’re considering a sale, you want to make sure your financial position aligns as much as possible to the expectations of potential buyers, showing growth and a predictable income. 

Once you’ve made that decision, it’s time to for step two -- cleaning up your organization’s data.  We will talk here about scrubbing accounting data, but this applies to any area where information is reported.  For accounting, cleaning up your data means analyzing the spend in each of your general ledger accounts, ensuring you would be able to prove the balances contained in them.  While this is something that should be occurring with each month end, sometimes people take shortcuts.  This has been especially true, in our experience, for organizations with limited accounting staff.  When it’s a small pool of people reviewing transactions, an employee may not fully document each transaction as they’re an expert in your business and know what each entry means.  However, during a sale process, you’ll be handing these documents over to a third party for review, so they must be laid out in a logical fashion and use whatever sort of paper trail you have available.

While your accounting team is making sure your financials are audit-ready, your other managers can be gathering and summarizing the key performance indicators (KPI’s) of your business.  These can vary a bit by industry, but often include things like employee turnover, quality defect rate, on-time delivery to your customers, and safety incident rates.  If you currently are not tracking these sorts of items, now is a good time to start.  If you don’t have that information readily available, it may take you a bit of time to sift through old documents or system generated reports to develop them.  You should aim to have 3-5 years of history available.  This is time well spent, however, as you will certainly be asked for the KPI’s, and being able to quickly respond to buyers’ requests will put them at ease knowing you have a good handle on your operation.

With that history in hand, you can move on to step three, comparing your results to other firms in your industry.  Google can be your friend in completing this research.  Be creative with the keywords you enter in the search bar, and you’ll be surprised with the amount of publicly available data.  If you’re not finding enough of what you need with a free search, many industry associations, and possibly your chamber of commerce, publish data with annual reports and surveys.  Even if you are not a member of those organizations, you can often pay a fee to receive this valuable information. 

Once you’ve found good comparative data, you’ll want to see how you stack up.  If you find you’re behind on certain metrics, you can set goals and projects for your team to move in a better direction.  When you’ve followed the advice to forward-plan your sales transaction, you’ll have time to make course corrections before any external party is reviewing your performance.

After all this data mining, you’ll have a good understanding of where your business has been, and a plan for correcting the most significant gaps you have from competitors.  With this work behind you, it’s time to complete step four, outlining future state. Depending on the size and complexity of your business, you may already prepare an annual operating budget.  This step goes further than that.  The idea is to think about where your business is headed over the next 3-5 years.  Which of your customers might grow?  Which ones might you choose to exit because they no longer fit into your strategy?  Will you be adding employees, new locations, or significant equipment?

Your accounting staff can then turn these assumptions into a robust model demonstrating how your income statement, balance sheet, and other operational reports would look when you stick to that plan.  Having this level of detail is important to buyers so they can see your patterns and trajectory.  An unexpected side benefit of this activity is that you, and your leadership team, will be on the same page and executing daily toward the same future. With that collective and cross-functional knowledge they will be better able to answer questions and stand up to the scrutiny that comes during the due diligence process.

You can’t and shouldn’t race through these four steps. They’re designed to help you make thoughtful choices about your operations today and tomorrow.  It won’t happen overnight, but if you follow through, they’ll translate into an easier process going to market, and better offers from buyers.  Involving key members of your staff can spread the workload and make the process less daunting.  However, if you find they don’t have the time or the experience, reach out to us for help.  We’re happy to guide you through the process, help you develop the necessary outputs, and put you comfortably on the road to your most profitable sale.