Selling your business is all about showing its value. Buyers naturally approach new business opportunities with some skepticism. After all, they intend to make a significant financial commitment for an investment that is considered high risk by any measure. As the seller, it is therefore important to allay the buyer’s fears and get them as comfortable as possible with the opportunity. Much has been written about what enhances or detracts from a business’ value. Some of these are often out of an owner’s control. If the economy is lousy or if the industry they’re in is undergoing structural change, then there is not much an owner can do about it. Other times, there are issues that are very much in the owner’s control, but are difficult to change in a short period of time. These include customer concentration problems, the nature of the revenue streams and the need to shift to more profitable and recurring sources, the need to enter higher growth markets, the necessity of beefing up the management team to name a few. Addressing these kinds of issues typically takes 3 to 5 years and that may be too long for an owner wishing to sell sooner. For owners in this group, I would suggest they address two relatively straight forward needs that will add value to the business and can be implemented quickly with a relatively low expense.
First, put in a decent accounting system. As I stated, buyers approach acquisitions with a great deal of skepticism and at a minimum, they want to examine readable, believable and understandable financial statements including a profit & loss and balance sheet statements that can be generated on a monthly basis during the sale process. This allows the buyers to get a real time feel for what the business is generating in cash, to understand the working capital requirements of the business and to compare financial ratios to other similar businesses. Since their decision is fundamentally a financial one, knowing the economic performance of a business is critical. It also demonstrates to the buyer that the current owners are closely monitoring and managing the business. These days, good accounting software packages are very affordable and every business should be using them as a matter of course. If you don’t have the time or the staff to do so, then hire an outside bookkeeper either through your accountant or a recommendation by your accountant. The cost will be more than returned in the sale. Since starting VR, it has been an eye opener for me as to the large number of businesses that do not have good or for that matter, any accounting systems in place. Without them, companies are more difficult to manage and have less value.
If you have a significant enterprise that is generating earnings of more than $500,000 annually, then I would also consider having your financial statements compiled quarterly and reviewed annually by your accountant (not audited) in the year before putting the business on the market and then provide these on a quarterly basis during the sale process. Buyers for these businesses appreciate and often expect these kinds of financial statements.
Second, make a modest investment in a good web site or improve the one that you have. It doesn’t have to be complex, but it should look good and tell the business’ story. Aside from the confidential business review that we send a buyer, this often forms their first impression of the business. Even small companies (those with annual earnings between $100,000 and $200,000) should have an internet presence. I am always surprised by how many do not. Implementing a good accounting system and website will enhance your company’s value and make the sale process that much easier.
Article By: Jeff Swiggett, CBI, M&AMI
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