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Quazar Quips© Volume 1, Issue 7

Things to Do Today to Prepare for a Future Sale

We often meet with business owners who are not ready to sell today but are preparing for an eventual sale one to three years out. If an owner has time to prepare, the company can generally be structured more effectively to maximize value at the time of a sale. We strongly recommend any owner contemplating a sale speak with an attorney, financial adviser, and accountant. Doing so will help ensure the after-tax proceeds from a sale are maximized.

We also want to point out a few items to consider implementing today for a sale in the future:

  • A business that runs well without significant owner involvement is generally more salable and attractive to buyers than a business where the owner essentially is the business. Buyers want to ensure that once the owner exits the business post-sale, the company will continue to run smoothly. We recommend that business owners contemplating a sale delegate some responsibilities to ensure that the business’s value doesn’t walk out the door every night with the business owner. 
  • Buyers need to see financial statements that can be understood and relied upon in order to complete an acquisition. If business owners do not have accurate, easy to understand financial statements, we recommend consulting an accountant to help before a sale.
  • “Add-backs,” or adjustments to annual cash flow, are typical in presenting a company’s annual cash flow as will be realized by a buyer going forward. However, many buyers carefully scrutinize “add-backs” and may not give them full consideration when calculating the company’s expected future cash flow. Moreover, some “add-backs” that are considered one-time expenses by the seller may not be looked at as such by the buyer. So we recommend thinking hard before taking a company-wide retreat or throwing a lavish company party when considering a sale in the near future. 
  • We will say it one last time: consulting knowledgeable professionals prior to a sale can be invaluable. A few items to consider when speaking with professionals about a sale include: transferring real estate out of the corporation, converting a C Corporation to a S Corporation, implementing an accurate costing system, and ensuring distinct lines of business are separated both operationally and in financial statements.
To discuss your specific situation and more ideas that could better position your company for a sale, please call Adam Webb anytime at (763) 550-9555.

Thank you for reading Quazar Quips, a monthly newsletter discussing the Business Brokerage market for deals between $1 million and $5 million in value. Each month, Quazar Quips will keep you informed about statistics, trends, and helpful thoughts within the Business Brokerage deal space. Stay tuned for next month’s newsletter, where we will discuss “What to Do When a Competitor Wants to Buy Your Business.” If you or someone you know is thinking about selling their business, please contact Adam Webb at (763) 550-9555.
Bruce Behm is a licensed real estate broker of Quazar Business Brokerage
Quazar Business Brokerage©, 3535 Plymouth Boulevard, Suite 210, Minneapolis, MN  55447 Want to change how you receive these emails? You can update your preferences or unsubscribe from this list