Operations

Grooming Your Company for Sale

LCT Staff
Posted on March 1, 2001

At this point you have prepared yourself emotionally for the sale of your business and need to begin thinking about how to “groom your company for sale.”

On the cosmetic side, you must take a serious look at your facilities and in a similar fashion as you would consider selling a home, should cause your offices, warehouse space and general work area to be in immaculate condition. A fresh coat of paint will cure many office ills. A prospective buyer’s first impression is quite important and the condition of your premises will speak volumes on you and how you view your business.

You must also remember that owners many times “fall in love” with their business and develop emotional attachments, while buyers view such businesses objectively as a cash-producing asset with various upside considerations in the future. It is critical for you to psychologically bridge the gap of both concepts when grooming your company for sale.

You must be sure that all of your financial statements and tax returns are current and readily available for the buyer. These documents will give the buyer a meaningful snapshot of the overall condition of your company.

In your desire to maximize the selling price and to achieve that goal you will need a line-by-line analysis of your financial statements. It is wise and recommended that you utilize the services of an experienced accountant or mergers and acquisition intermediary. That individual will also assist you in preparing reconstructed financial statements which will have the most dramatic effects on the final purchase price.

The more simplistic in presentation form that you can demonstrate to a buyer how revenue, expenses and profits evolve within your company, the more likely a buyer will recognize the positive impact on cash flow and future earnings. You should also prepare an updated accounts receivable and accounts payable report which has a detailed aging of such receivables and payables.

You should also prepare a concise schedule of your inventory and equipment to show depreciation computations and accumulated depreciation to date. In the case of inventory, a schedule which addresses the original cost, quantity, age and salvage value should be prepared to detail all inventory issues. Be prepared to support the reasons why such inventory levels have been maintained to date.

With respect to equipment, specifics including cost, age, condition, maintenance and net book value are also essential.

Prior to meeting with buyers you should consider speaking with key personnel and advising them of your intentions. A prospective buyer will need assurances that the company will not witness a mass exodus once the sale is consummated. There have been debates regarding when a seller should inform their employees of a potential sale and in my experience, the most strategic time is established when you are one hundred percent certain you’re ready to sell. You can count on rumors circulating anyway should you not discuss your intentions regarding a sale of the company. Employees seem to have an uncanny ability to “hear” conversations you may view as confidential. Once it reaches the rumor cycle, your ability to control departures and morale issues lessens day by day.

You will be apprised of a series of documents which will be required in the due diligence phase, however, at this time you should gather all of your legal documents including leases, employment agreements, regulatory documents from government agencies, contracts, environmental documents, lawsuits and all insurance policies.

Ideally, having a business plan will prove to be helpful and this document could be given to a prospective buyer upon the signing of a confidentiality agreement.

A concise and informative business plan will enable a buyer to quickly understand major components of your company and elements of its potential growth in the future.

There are currently many software packages that are available to assist you in the preparation of a business plan. I would highly recommend that you consider utilizing the services of a professional in drafting the plan unless you’ve had experience writing business plans in the past.

As a brief overview of the expected sections that are more commonly found in most business plans, the following areas should be included: For additional information on this topic, check out the March issue of LCT!

LCT Staff LCT Staff
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