Seller Preparation
Over the years we’ve talked about the need to have some sale pre-planning to improve the position of the company and increase its value. There are numerous variables that need to be addressed and an owner may have to modify how they operate their business in order to reap large rewards.
Another critical aspect of selling a business is preparing for a buyer’s due diligence process. Many deals collapse when problems arise during the review of financial statements. A buyer, and probably their accountant, will spend quite a bit of time analyzing the financial statements and tax returns to validate stated income and cash flow.
Clean and clear financial statements that conform to GAAP standards and tie to tax returns are critical to the success of a deal. Having the ability to run monthly, quarterly, and annual reports give some comfort to a buyer, but they need to hold up to scrutiny too. Explaining the basics of the financial reporting to a buyer or having the company’s accountant available to answer questions is a must.
A seller needs to keep in mind that a buyer may believe the cash flow is there and can follow the trail of money, but if it isn’t reported clearly and correctly, or if there are too many inconsistencies, the buyer’s bank will most likely turn down the buyer’s loan application. Lack of preparation hurts the seller in several ways:
- extra time and effort in explaining the money trail which leads to time not spent on the business,
- time wasted with a buyer and waiting for bank decision,
- perception of other buyers who think that there is something wrong with the business when it becomes available again,
- downward pressure on price,
- and, maximum stress on all involved!
Please consult with an Apex Business Advisor about what it takes to sell a business for maximum value in less time.
Doug Hubler
President
