No coach in their right mind puts their team up for the most important match of the season without undergoing training and preparation.
Selling a firm is no different. Unless the shareholders want to sell the firm immediately due to personal reasons, preparation should be undertaken before a company is put up for valuation.
Although there are no guarantees that performance will improve, experience shows the odds of achieving a fair valuation increase with proper preparation.
Ask your accountant to sit on the bench
It’s time to run fast. so unfit people should be taken off the team. Slow responses from the compliance or accounting departments only frustrate a deal.
Even if the buyer does not require an audit they will have technical questions. Put together a “deal team” that understand the numbers and can turn questions around fast. Otherwise risk frustrating and breaking what could have been a good deal.
Simplify the game
Businesses grow organically and take twists and turns during their lifetime. Expect the accounts to become messy and inconsistencies to creep into the figures. A manicure and massage of the numbers will straighten the financials before they reach the buyer.
A buyer will have several deals to assess. The faster they can absorb the numbers, the quicker their decision.
Put operating expenses on a diet
While the directors have been pushing up revenue, operating expenses have gone up too. Now is the time to re-evaluate budgets and trim down expenses that have inflated over time.
There are many places where fat can be trimmed.
Remunerate the team in full
Earlier we mentioned cutting costs. Here we are ensuring costs are reported in full. A common misrepresentation is for directors of a company to work for free and not take a salary. This misrepresents the true cost of creating value in the company – a fact a smart buyer will discover during due diligence.
The same can be applied to other expense items that may be under reported, where friends or family have helped the business at discount rates.
Forecast future earnings
Most company owners can show how their team performed historically but what about tomorrow or next month?
Does the business expect a cash shortfall in any month? What portion of revenue is guaranteed, and what portion is dependent? If a large portion of forecast revenue is dependent, are the numbers a worst or best case scenario?
Solid financials will include a forecast with disclosures. If this report is missing, have a professional provide one and explain how the forecast is calculated.
Pay consistent dividends
Some buyers will buy a business because of the name. A little like a fashion statement (remember Chelsea 10 years ago?) However most buyers are astute investors. That means the bottom line counts.
There’s no point asking a buyer to pay US$3 million for a company if the buyer can see no means of ever breaking even on the deal. Put in place a dividend plan that makes frequent payments, no matter how small.
This proves to the buyer that despite the high ticket price, the firm’s performance has the shareholder in mind.
Where are you now?
Distill the business into one tidy pitch document that will serve as the initial communication to buyers. A pitch document forces you to think about how the business will be packaged and highlights the plusses and minuses.
After creating the pitch document, more work may be needed before the business is ready for track day.
Views expressed are of the author and e27 may not necessarily subscribe to them
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