Preparing Your Business for Sale
By Curt Cyliax
Strategic Exit Advisors, LLC

Preparing your business for sale is not just a good idea, but an absolute necessity to maximize the business value when you are ready to sell. Who doesn’t want the most from their efforts?

See how well you have prepared your business for sale by answering these questions.

Can the business continue without you?
Family owned and operated can be a positive marketing tool. But if you’re too integral a part of the business, when you’re ready to leave, your intricate involvement could impact the business value. Buyer’s react to owners being too involved by reducing the value, extending the payout timeframe, or both. If you’re too pivotal to the business, the business value suffers.

Are you working on, or in the business?
Are you working so hard in your business you have no time to think about the future? You could be impacting the value of the business. If time is an issue, maybe a growth through acquisition strategy will afford you the time to plan for the future of your business, while creating greater value in your business.

Is the business strategy to minimize taxes vs. maximizing earnings?
Nobody pays extra taxes. We all spend money better than the government, so we look for ways to pay less tax. Underreporting sales, or over reporting expenses is not the correct business strategy when planning to sell. Correct the controls which allow oversights to continue. Proper reporting, returns a greater value when you sell and creates credibility.

Have changes been made for the business to prosper?
Postponing a capital expenditure may be the right temporary fix to a problem or circumstance, but has long term performance been jeopardized for short term issues? Selling a business with a significant upside potential when new owners will risk substantial capital to upgrade property, plant, equipment and personnel can be challenging or unrealistic. With risk goes reward. The more new owners risk the less your reward!

What is the competitive environment like?
When the business started there may have been significant barriers to entering the business. But with time, technology, and low cost capital, barriers may have disappeared. While independent hardware, stationary, and pharmacies still exist, many are gone for good, with the survivors challenged to continue. Has your industry been “super sized”, reducing your market share? Have competitors been acquired by another competitor reducing your competitive advantage? Is your industry next? Is the business unique, or just a survivor? Many owners believe they are more efficient than competitors. Find out. Invest in comparable information for your business. See how you do versus others and understand what you do better and what you don’t. Once you understand where your soft spots are, then you can develop a plan to make your business better.

What is the legal entity of the business?
Consider the legal structure of your business and the tax implications when selling. Entities set up years, or decades ago, to address a then timely legal, tax, or operating strategy may not be appropriate today and will adversely affect the value when selling. Your legal, tax, and business intermediary advisors should be a valuable resource, not just a line item expense. Make sure your professionals keep you current on the proper structure for your circumstances, to maximize value.

What changes would I recommend to a “new” owner?
If a new owner bought my business, what would I tell them to change? Do I have employees who are unproductive or negative? Do we meet industry performance standards? Do I have equipment setting idle, just waiting for that once a decade job? Are costs so high a new owner could bring them down? If any of these questions ring true, then why not change now? If you’re trying to avoid the inevitable headache of change, you’re hurting the business value.

All businesses experience business cycles with peaks and valleys. Very few consistently improve sales and earnings year after year, have experienced employees who stay year after year, with customers that never buy from competitors, and suppliers that never change. It’s critically important to keep an eye on the future and plan your exit strategy. Keeping your business prepared today, no matter what size, makes it more valuable when you do sell.

Although there are nearly as many valuation methodologies as there are valuation professionals, one of the most important components of any business valuation is the predictability of earnings. Whether your business’ value is based upon Sellers Discretionary Cash Flow or Earnings Before Interest, Taxes, Depreciation, and Amortization, predicting the future is typically a precursor of the past.

It is important to prepare yourself and your business for selling. Most owners only sell once, so you want to make sure it’s done the right way to maximize your investment!

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