SELLING YOUR BUSINESS?
WHAT A SUCCESSFUL SERIAL BUSINESS SELLER WANTS YOU TO KNOW
As business owners, we thrive in the stimuli of growth, constantly thinking about our services and product mix and wondering if we are priced right for the business and our customers. We think about our employees, and whether we have created the right environment and incentives for them to be highly productive in their roles. Furthermore, if they aspire for more responsibility, how do we set the right course for career development? We think we need to know how much money is in the bank, do we have any issues with accounts receivable, and are our banking relationships such that we can get a line of credit or longer-term financing to maintain stability in the business. And, finally, if we have investors are we communicating the right information on the state of the business and our strategic goals?
At some point, we also start considering the value of the business and wondering how we measure up against the competition. Is the marketplace shifting in some way, and if so, is there an exit or succession plan in place? Oftentimes, business owners get that gut feeling that is time to explore a business sale.
As wealth advisors, we are often involved with business owners either in the early days of their business or more certainly as they begin to accumulate wealth from their success. We advise on the family’s wealth, develop financial plans, interact with the CPA professional on tax mitigation strategies, and engage with the business or estate attorney on entity structures to help protect their wealth. Additionally, when making major, life-changing decisions, we help develop and fine-tune scenarios that help the business owner visualize their future post-sale.
Before we put the cart before the horse, there are many steps business owners should consider and implement in preparation for a business sale in the future. This series called “Preparing for a Business Sale” will review 10 important steps that we recommend when assisting our business owner clients with business sale transactions.
PART 1: FINANCIAL PREPARATION
Somewhere along the way, you, a bookkeeper, or an accountant prepared a chart of accounts which is a list of accounts set up on your accounting system to organize and track financial transactions. The accounts are then organized into major categories like assets, liabilities, equity, revenue, and expenses. This forms the foundation for building reports like income statements, balance sheets, and cash flow statements in a way you or your finance team feel most comfortable with and for you to quickly assess what looks like right or off.
When considering a sale, the chart of accounts, the general ledger with all the transaction history, and the finance reports take on a new meaning when presented to an interested third party. It is important to make sure that the records are accurate, reconciled to your bank account(s), and if possible, professionally audited. The credibility factor is at a premium here, so they need to be right. We are seeing more instances of business owners hiring firms to conduct a quality of earnings report that often uncovers new ideas for increased profitability and/or business optimization.
The business owner will take these reports, likely defend some positions targeted for change or improvement, but ultimately will usually walk away with some nuggets to streamline part of the business, improve profitability, and set the company on a higher margin trajectory which clearly will help with business valuation.
Lastly, during the financial preparation stage, the business owner will develop a financial forecast for the next 3-5 years that will demonstrate to a potential buyer the stability of the business and the growth potential.
In summary, accurate financial details on your business, combined with enhanced profitability, and a defensible growth plan are, in our opinion, the non-negotiables in beginning the journey to a successful, business exit.
Next in the series, we will tackle operation optimization for the business. Until then, start drilling down one level deeper into your finances and uncover ideas to drive margin expansion.
Concerned about exiting your business? Contact Waverly Advisors, LLC today!
MEET THE AUTHOR
Tom Brown
Partner, Regional Director, Wealth Advisor
Tom seeks continuous refinement of systems and technology solutions to help clients navigate their financial life in a holistic way. As a successful entrepreneur, Tom has founded three businesses that have been acquired over the past three decades. He has employed hundreds of like-minded, hardworking people, and have watched many of them continue to create their own prosperity…. Learn More
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