Preparing Your Business For Sale
Before you put your company on the block, there are a few things you should do to prepare your business for sale. You are well advised to begin this process at least one year in advance.
Clean up your books
The buyer will want to see clean audited GAAP compliant financial statements. Use a 3rd party accounting firm to certify your financial statements. You should also be able to identify owner discretionary items and create pro-forma audited financial statements excluding such discretionary items. We highly recommend that you have at a minimum the last 3 years of financial statements readily available.
Diversify your customer base
If your company is heavily relying on a few customers, try to bring in additional customers to diversify your clientele. You should also minimize idiosyncrasies and aardvark customer situations. A customer base where all customers have different terms, price points, and product configurations will reduce the value of your business.
Review supplier and customer contracts
Make sure terms and conditions will not expire or require renegotiation shortly after your business changes hands. Eliminate non-profitable contracts or deals that might trouble a potential buyer.
Make sure adequate controls and systems are in place
Although you should already have this, make sure your AP, AR, inventory, and cash management systems and processes are adequate and well documented.
Take inventory
Inventory all your fixed assets. Write-off obsolete inventory and separate real estate assets from operational inventory.
Codify company procedures and policies
Start codifying company policies and procedures that exist as unwritten rules. Create a procedure manual that documents the company's processes and procedures including unwritten rules and procedures. Further, make sure you have an updated employee code of conduct manual.
Devise an employee turnover management plan
The loss of key employees can rapidly kill a deal. Since key employees can be vital to the new owner's success, make sure you know which employees are prepared to stay with the company during and after the transition. This is a tricky task as it is also important that employees are unaware of the pending sale. Rumors that the company is for sale can trigger significant employee turnover restricting or severely hampering your ability to operate the business.
If you have any questions on the above material or want to know how KDS Capital can help you in your venture, feel free to call us at 602-490-0723 or toll free 800-880-0717.