- Posted by Clear Rock
- 0 Comments
Deal Killers: 5 “Do Not’s” for Selling a Company (Part 2)
This is our second part in our series on “Deal Killers.” What are Deal Killers? Things that we’ve seen time and again that keep a business owner from existing their company. See Part 1 here. Picking up where we left off…
QUESTIONABLY OR UN-DOCUMENTED “OWNER PERKS”
perksPicking up from last article on the importance of having solid records, one thing that we frequently see are questionable or aggressive “owner perks.” This can range from padding the travel budget to paying for Suzie’s college out of business funds to not reporting cash receipts.
In some cases we can make adjustments to reclass these items to profit – BUT the business owner must be able to document the adjustments. Ideally to the last penny. One thing that is for all intents impossible to reclass to profit (and hence take into account for valuation / pricing purposes) is unreported cash. In fact, unreported cash is such a Deal Killer that we typically will not take on an assignment if un-reported cash is a meaningful component of profit .
Year-end “Tax Planning” Adjustments
In terms of “tax managing” a business, owners will typically make year end adjustments to AR / AP / inventory. These adjustments often present challenges when buyers are trying to understand the true cash flow and working capital requirements of a business.
INEXPERIENCED TRANSACTION COUNSEL
We push our clients on this point on every single transaction: the importance of having an experienced transaction attorney cannot be overstated. The buyer will in all likelihood have an experienced attorney. Having a general practitioner, the attorney that handled your last real estate deal, or worse- a family friend, handle the transaction can be downright foolish. Experienced transaction attorneys can help facilitate the deal while protecting your interest – rather than using your deal as a learning process and being an impediment to closing.
This is probably just common sense, but a spouse is often a “silent partner” in a privately held business. Having their buy-in to proceed with a transaction is often critical. Smart sellers get the topic on the table early in order to prevent problems later.
Look for our third and last installment of this series where we’ll talk a little bit more about some of the financial considerations in a sale.