Running for the Exits

Is Your Business Ready for Sale?
For the last several years, sales and purchases of small businesses have been in decline. The “Great Recession” has made many people hypersensitive to economic risk. Many aging baby-boomer business owners who dreamed of getting out by now have not been able to exit their businesses, or are not being offered the sale price they’d hoped for.

Things may be changing.

Private equity firms are sitting on an estimated $500 billion in cash. In the last year, less than $50 billion of that has been spent. Investors who provide money to private equity funds do not expect their cash to remain idle over the longer term. Private equity firms know they must put this money to work if they want to continue in the business.Recently, more and more downsized corporate executives have expressed interest in owning a business.

Many of these potential buyers are passionate about taking charge of their own lives and are actively searching for businesses to buy.As the economy and debt markets continue to improve, more and more private equity firms, companies, and individuals will be aggressively seeking good acquisition candidates. Unfortunately for all involved, good acquisition candidates are currently scarce.

If you are a business owner and want to sell, will your business be considered a good acquisition candidate?  Good acquisition candidates generally have strong, sustainable business models that include steadily rising sales and income. They are also as profitable as possible for their industry, with all waste and non-productive expenses removed.

Most potential buyers will concentrate heavily on your financial statements, at least to start their due diligence. Nothing will cause a potential buyer to dig deeper in due diligence than if they find problems in your financial statements or key management reports. If you do not have quantifiable, verifiable, and relevant data, you will not maximize your selling price and you may not even be able to sell your business. Are you comfortable your financial statements and key management reports are accurate and reflective of the substance of the business? If not, you need to act now to clean them up. You can’t wait until potential buyers show up.

Can your organization sustain an intense due diligence exercise? Are you sure you don’t have gaps in your internal controls, records, financial statements, and processes? Once due diligence starts, if the potential buyer catches wind of sloppy controls, statements, processes, and/or legal/organizational documentation, at a minimum they will use that to try to drive your price down. At worst, these problems will kill the deal.

If your business is well documented and legitimately shows good financial performance, can that performance be replicated? If your company is a “one man band” and you want to retire when you sell, you must have a strong management team that can carry on without you. Are you actively training and developing your staff today, for tomorrow?

And remember, you can’t take your business with you! The natural order of things mandates we all exit someday. You can either plan for it now. or force your family, friends, or partners to make huge decisions about your business under fire, at a bad time, and without adequate planning.

Do everyone a favor and take some time to get your organization in shape. By doing so, you’ll allow yourself to consider how you want to exit, not whether you’ll be able to.

Reprinted with permission from the B2B CFO partners of the Baltimore – DC Region:

John Fink, Scott LeVora, Doug Smith, Stu Welsh, and Paul Zambrotta

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