Strategic steps to take before you sell your company
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Before initiating the sale process, it’s crucial to evaluate the financial health of your business. Prospective buyers will closely examine financial statements, profit margins, cash flow, and growth potential. Engaging a professional accountant or financial advisor can provide valuable insights to ensure your financial records are accurate and well-organized.
Additionally, addressing any outstanding debts, resolving legal or tax issues, and optimizing profitability can enhance the attractiveness of your business to potential buyers. Here are some key considerations when assessing financial readiness:
Accurate Financial Statements: Start by reviewing your financial statements, including the balance sheet, income statement, and cash flow statement. Ensure that these statements are up-to-date, accurate, and prepared in accordance with generally accepted accounting principles (GAAP) or the applicable accounting standards in your jurisdiction. Consider engaging a professional accountant to assist with the preparation and review of financial statements.
Clean Up Financial Records: Organize and clean up your financial records to present a clear and coherent financial picture to potential buyers. Eliminate any ambiguities or inconsistencies in your financial data. Resolve any outstanding accounting issues, reconcile accounts, and address any misclassifications or discrepancies.
Profitability and Cash Flow: Analyze your company’s profitability and cash flow trends over the past few years. Buyers typically look for businesses with steady revenue growth, healthy profit margins, and positive cash flow. Identify any areas for improvement, such as reducing expenses, increasing efficiencies, or diversifying revenue streams to enhance the financial performance of your business.
Asset Evaluation: Assess the value of your company’s tangible and intangible assets. Tangible assets include property, inventory, equipment, and other physical resources. Intangible assets may include intellectual property, patents, trademarks, copyrights, or customer databases. Conduct a thorough inventory of these assets and determine their fair market value.
Debt and Liabilities: Evaluate your company’s outstanding debts and liabilities. Potential buyers will want to understand your debt obligations, including loans, leases, and any other financial commitments. Ensure that you have a clear understanding of these obligations and work towards minimizing any outstanding debts or liabilities where possible.
Tax and Legal Compliance: Review your company’s tax filings and ensure compliance with applicable tax regulations. Address any outstanding tax issues and consider seeking advice from tax professionals to optimize tax efficiency and minimize any potential liabilities. Also, ensure that your business is compliant with all relevant laws and regulations governing your industry.
Future Growth Potential: Assess and articulate the growth potential of your business to prospective buyers. Highlight opportunities for expansion, new markets, product development, or strategic partnerships that can attract potential investors or buyers.
Financial Projections: Prepare realistic financial projections that demonstrate the future growth potential of your business. These projections should be based on sound assumptions, market research, and a thorough understanding of your industry. Make sure the projections are supported by evidence and can withstand scrutiny.
In addition to these considerations, it is advisable to engage a financial advisor or business valuation expert who can provide a comprehensive analysis of your financial readiness and help you understand the strengths and weaknesses of your company’s financial position.
By assessing and enhancing financial readiness, you can present a compelling financial profile to potential buyers, instill confidence in the value of your business, and ultimately increase the likelihood of a successful sale at an optimal price.
Steven Young is a Senior Vice President of Wealth Management for UBS Financial Services Inc. He is the team lead for the Business Transition Consultants based in Indianapolis.