The most successful business transfers are the ones that are properly planned in advance. AAFCPAs encourages clients to think proactively in order to get the most out of what is likely your largest and most important asset. The following strategies may better position your business for a higher price when selling.
- Have your financial statements audited or reviewed by an independent CPA – Audited or reviewed financial statements provide potential buyers or investors with assurance regarding the reliability of your financial position. Further, audited or reviewed financialscan greatly assist and expedite the buyer’s due diligence work. The audit may also bring to your attention any weaknesses you may have in accounting procedures and controls. This will provide you with an opportunity to address these issues in advance of the sale process, and to demonstrate to potential buyers your commitment to sound financial controls.
- Clean up the balance sheet – Buyers want clean financial statements. The fewer adjustments that are made to the financials, the more credible they become. AAFCPAs advises clients thinking of selling to remove old assets no longer in service, write off bad accounts receivable, re-class loans from shareholders to equity, and remove receivables owed from shareholders, either by repayment or compensation.
- Manage the income statement – Every dollar you save in an expense could increase the value of the business by $4 to $5. Reduce discretionary expenses, such as: meals & entertainment, and auto expenses. Adjust officers’ salaries to fair market value. It is much more credible to make these adjustments in advance of the selling process, and can avoid normalized adjustments in a valuation, which would require alterations to your historical financial statements.
- Utilize your budget – Budgets are too often proposed, discussed, accepted, and forgotten. A well-managed business will have a clear understanding of budgeted versus actual, and what caused the difference. In some cases, variances result in outcomes that are good for business. A living and updated budget will allow business executives, and potential buyers to see that the budget is realistic and the business is on pace to meet long-term objectives.
- Evaluate your most trusted advisors – Growing businesses often outgrow their initial advisory team. The people who got you to your current level may not be the ones who can get you to the next. Evaluate your advisory team to ensure they remain reputable, fully experienced, and responsive. They should also have the necessary depth for your current and evolving needs. Your law firm should be able to provide legal advice on all areas of your business, and should have advisors specializing in the complex areas relevant to you. Your accounting firm should be able to proactively recommend tax savings, and provide audits, reviews or compilations as needed by your funding sources or buyers. AAFCPAs provides buyers and sellers with advisory solutions, such as: business valuations; analysis of your financial statements; financial forecasts, projections and budgeting; as well as business performance, internal controls & IT advisory. Top notch advisors will help you run your business more efficiently and effectively, add to the bottom line, and increase your business’ value.
- Know your competition – It is extremely important to regularly conduct a thorough competitive analysis in order to stay one step ahead. This analysis will expose strengths your company has over its competition, and what your weaknesses are in comparison. Consider doing a SWOT analysis (strengths, weaknesses, opportunities, and threats). These analyses may also inform decisions to implement strategies that increase the value of your business.
- Benefit from outside directors – Businesses, especially those that are closely-held, may benefit from independent directors’ expertise. Engage reputable business owners, consultants, attorneys, and accountants for your fiduciary board or advisory board who have experience in your industry. In addition, where appropriate, remove family members from the Board if they are not involved in daily business operations. Outside directors can offer invaluable counsel on a variety of key issues, as well as demonstrate that you are committed to sound governance practices.
- Track analytics to your industry – There are key performance indicators and ratios, as well as industry-specific benchmarks you may track to evaluate your position within your industry. Assessing your market position will allow you to identify gaps in your processes in order to achieve a competitive advantage, as well as better position you for success when justifying why your company deserves a higher multiple than the average in the industry.
Business owners need every advantage when planning an exit or sale. AAFCPAs has over 40 years’ experience helping business owners to create sustainable and transferable value in their business, and achieve a well-prepared and successful exit.