- Posted by Clear Rock
- 0 Comments
Get Your Company Ready for a Sale
Thinking about selling? One of the biggest things that we see that depresses value is owner’s that are unwilling or have not prepared well in advance for a sale. Here are a few items to consider:
Have financial statements audited.
Try to reach the magic number of $1mm in EBITDA and thereafter earn as much money as possible. For companies over $10 million in sales, try to exceed $1mm in EBITDA.
Justify the add-backs and/or adjusted earnings.
Clean-up the balance sheet, i.e., stockholders, pay-off loans, write-off obsolete inventory and uncollectable A/R’s, sell off non-producing assets such as slow-moving or dead inventory as the buyer’s due diligence team will identify them anyway. Dividend-out extra cash not necessary for working capital and liquidate stocks, bonds, etc. that are not associated with the company being sold.
Prepare financial projections 1-2 years out.
Receive fair market value appraisal of real estate (if owned) and M&E.
Have key employees sign non-compete and maybe have “stay-agreement” in place. Maybe promote key officers as full management team in place. Whatever relationships such as sales representatives agreements, key employees, landlords, vendors’ orders, customers’ purchase, etc. that should be formalized, do so for purposes of institutionalizing the business. Examine long-term contracts either to renegotiate the terms or extend these contracts if it is favorable.
Organize company records, i.e., minutes, BOD meetings, etc.
Settle any and all legal threats by customers, vendors, or employees that have not yet materialized.
Set up a War Room whereby various documents pertaining to the business will be accumulated in one specific place. (If you are working with an investment banker / M&A Advisor they will likely help you set up a “Virtual Data Room” instead of a physical room.) See more here: Virtual Data Rooms for M&A.
Consult with your attorney and/or other advisors for tax planning, generation planning, wealth management planning, etc.
Select an investment banker well in advance so that you will have their opinion of a range of valuation to expect from the potential buyers.
“Begin with the end in mind” is an expression that means one should estimate the selling price and then factor in all the deductions including capital gains tax, transaction costs and in some cases severance costs to determine the net proceeds, then divided by the respected ownership to determine if the net amount will be acceptable.
Clean-up the office and facilities