If you are a business owner, you have likely spent countless hours working on your business and building its value. The decision whether to sell your business could be the most significant decision of your life, as the financial implications may have the added complexity of letting go of something you’ve built from the ground up.

Taking the time to adequately prepare so you can maximize value and minimize costs will help you make the transition. Here are three questions to ask before selling your business.

Are your books in order and records readily available? 

Alleviate a potential buyer’s concerns by having financial statements that are verified by monthly reconciliations and supporting documentation. This preparation will increase a buyer’s confidence that the financial information provided by the seller is accurate. Be sure these reconciliations are supported by readily available documentation such as bank statements, check copies, invoices, purchase orders, and contracts.

During the due diligence process of selling your business, a buyer will request many documents for review, such as:

  • Lease agreements
  • Employee agreements
  • Company Policies

It is also important that these documents are readily available during due diligence to facilitate the sales process. Serious buyers expect accurate financial information and documents before moving forward with an acquisition.

What unusual events could impact selling your business?

A potential buyer will be interested in what the business will look like after the purchase has been made and will use historical financial information as a factor in determining their expectation. Identifying anomalies in business activities before entering the due diligence process will help a business owner be prepared for questions that arise regarding these anomalies.

Identify anomalies that were within your control. Did you land a large, non-recurring customer that would cause a spike in revenues for a month? Did you have a significant uninsured event that required a large capital expenditure? Did you make a discretionary bonus payment for the first time? Did you recently move into a new location? Be prepared to explain why these events happened and how they will impact the business in the future.

Identify anomalies that are out of your control. Were you significantly impacted by market fluctuations? Have you been hindered in revenue growth due to difficulties in filling open positions? Have you been significantly impacted by changes in laws and regulations? Be prepared to explain how a buyer can mitigate negative impacts and prepare itself to maximize similar, positive events in the future.

A deal may include provisions for a working capital true-up or an earnout. Having reliable historical financial data and an understanding of past events will aid in creating an agreement that is reasonable and provides the desired outcome for all parties.

Identifying activities outside the normal course of business on your own will help tell the story of your business and will allow you to be better prepared when those actives are questioned.

Do you have trusted advisors to assist with selling your business?

Selling a business requires expertise in each area of your business. Requesting expert assistance in preparation of selling your business can help you uncover hidden business value. The “if/then” scenarios available in a sale are numerous and have significant dollar impacts based on the decisions made. Time spent with a tax accountant can help plan for various tax-related scenarios and lead to significant tax savings when you sell.

It is prudent to ensure you have a legal team supporting you in a sale to protect you from potential liability and ensure your wishes are properly communicated in the purchase and sale document. Depending on who is acquiring your business, financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) may be required. Also, future events such as working capital true-ups and earnouts may be calculated based on GAAP. Since your business may be kept on a cash basis or tax basis, having a trusted CPA assist you in converting your financial statements to the accrual basis required by GAAP will ensure you are prepared and understand your financial statements.

Most businesses today are reliant on technology in some capacity in order to conduct their day to day operations. A serious buyer will want to understand the technology used by a potential target to uncover hidden potential liabilities, evaluate if the system used by a target will provide the information or service needed in the future, and evaluate cost. While a buyer may bring in its own team to conduct due diligence on your technology, having an expert available that can “speak the language” is a must have.

A trusted advisor can lead cost savings and fewer headaches during the sale process. Identifying those advisors before entering the process is a benefit to a seller. Before you enter the process to sell your company, you can help yourself considerably by doing adequate planning and preparation. Engaging a sell-side due diligence team can help you go to market with a firm understanding of how your company will be valued and identify and preemptively address what a buyer may consider to be a red flag that could derail or delay the transaction.

Conclusion

Selling your business is a huge undertaking that comes with a lot of different factors to consider. Tackling some of those factors before selling your business can make you much better prepared.