Dressing It Up: 4 Steps to Prepping Your Business for Sale
If your plan is to take your company to market to sell and actually get what you think it’s worth (rather than what your ego tells you it’s worth), you need to do more than just put a “For Sale” sign on the front lawn. To ensure you get maximum value for your company, here are the top four things you must do before you start shopping for that retirement boat.
1. Clean the “Financial Kitchen”
No buyer wants to see your personal car lease, your daughter’s cell phone bill, or your “business trips” to Cabo buried in the P&L statements. To get a premium valuation, your books need to be “clean.” This means moving from “tax-minimization mode” (where you look as poor as possible for tax purposes) to “valuation mode” (where your EBITDA shines). An independent advisor is essential here to help you “normalize” your earnings, showing buyers what the profit actually looks like. And the tighter your financial controls look, the greater the perceived value of your company. One of the biggest red flags to a potential buyer is seeing financial controls that look a bit loose and unkempt. They see that and immediately start wondering what else is going on under the hood. Simply put, clean/tight books equal a stronger valuation.
2. Fire Yourself (Metaphorically)
If the business stops breathing the moment you go on vacation, you don’t own a company; you own a high-stress job. Buyers call this “owner dependency” and it immediately knocks down the multiple they will be willing to pay. Buyers pay a premium for systems & proven processes, not superheroes. You need to document your processes and empower a management team that can function without your constant involvement. If you are the only person who knows how to fix the “glitch” in the software or soothe the biggest client, your business is a liability, not an asset in the buyer’s eyes. This is often a tough one for many owners. But you need to learn to get out of your own way. Build a great team and let them shine. That is music to a buyer’s ears.
3. Diversify Your Friends
If 48% of your revenue comes from one customer who only stays because you played college football together, you have a “concentration risk.” Buyers hate concentration risks. They want to see a broad, diverse customer base that won’t vanish the moment your face is no longer on the business card. Start spreading the love—and the contracts—long before you hit the market. In a word—diversify.
4. Put on the Buyer’s Hat
Eventually, the buyer’s attorneys will go through your contracts, employee files, and IP rights with a fine-toothed comb. It is much better to find that expired lease or the missing trademark filing yourself than to have a buyer find it and use it as an excuse to shave $3 million off the asking price.
Taking a company to market is an emotional and technical marathon. And it’s a marathon with a capital M. Most owners have little understanding of what they’re in for and it’s likely their first time to ever sell a business. And you’re selling to a buyer who does this every day of the week. Working with an independent advisor ensures you have a cold-blooded advocate who knows where the bodies are buried—and how to move them before the neighbors notice.
As the saying goes, if you’re planning on selling your business in the next 2 or 3 yrs, you should’ve starting on these things 3 years ago. At Navon we can help you assemble your team to help prepare you and your company before we go in to battle. The difference between preparing and not can be the difference between a successful and no sale at all.
Taking a company to market is an emotional and technical marathon. And it’s a marathon with a capital M. Most owners have little understanding of what they’re in for and it’s likely their first time to ever sell a business. And you’re selling to a buyer who does this every day of the week. Working with an independent advisor ensures you have a cold-blooded advocate who knows where the bodies are buried—and how to move them before the neighbors notice.
As the saying goes, if you’re planning on selling your business in the next 2 or 3 yrs, you should’ve starting on these things 3 years ago. At Navon we can help you assemble your team to help prepare you and your company before we go in to battle. The difference between preparing and not can be the difference between a successful and no sale at all.
Navon Wealth does not give tax/legal advice and encourages clients to seek such counsel.