[This is a guest article written by Virginia M. Turezyn. She is a managing partner at Sival Advisors LLC, a boutique M&A advisory firm for technology and service businesses in the middle market.]
If you have spent much of your career building a business, I am sure you anticipate that others will want to buy it from you one day and all your hard work will turn into your retirement nest egg. If so, read on.
What Will a Buyer Look For?
- A very organized and well-run business, including automated processes
- A stable and repeat customer base
- Future sales pipeline and explanation of your sales cycle
- A team that is not solely reliant on 1 or 2 individuals
- Clear competitive advantages and understanding of your competition
- A website which is current and visually appealing
- Preferably a website with continuously updated content and optimized to attract the right type of customers organically
- Clean financials – all family/personal related pass-throughs disclosed
- Audited or reviewed financial statements (last year or more)
- Year over year growth in the business
- A forecast for the current year and 1-2 years beyond
- Scalability - how the business can grow even more if XXXX were to be done
- Legal documents and major contracts ready for review
- Detailed list of open items, legal disputes, issues, late receivables, open payables
- All taxes current – Fed, State, Sales taxes in states you do business in
- All business and professional licenses current
- Valid reason for selling now
- Realistic expectations
Offense vs Defense?
Play offense and be in control of your future exit transaction with the same care and attention you give to winning new business. Prepare now with an objective look at all the key disciplines in your business: Sales, Cost of Sales, Gross Profit, Sales, Marketing, Operations, Overhead. Pretend you did not own your company and wanted to buy it – what would you think of it today? After this assessment, done by you or a trusted advisor, start to improve it now.
Take an unbiased perspective on your business and be open with respect to all issues and challenges. A smart buyer will do extensive due diligence and will be looking to find all the warts and problems to reduce the price just as you would. If you have not disclosed issues and problems first, and the buyer finds them, you will be on a slippery slope in terms of price, terms, and even closing at all
Independent Advice Along the Way
You should work with a small cadre of independent advisors to help guide you. These include a savvy business attorney, tax advisor and personal wealth advisor. Forethought and planning as relates to your legal entity structure and estate/trust plans can make a significant difference in how any transaction will be treated for tax purposes. The latter, assuming a constant sale price, can make a meaningful difference in the ultimate proceeds which you get to keep vs donating to the IRS.
Virginia M. Turezyn is a Managing Partner at Sival Advisors LLC, a boutique M&A advisory firm for technology and service businesses in the middle market. Virginia has a broad and diverse background in strategy and business development, corporate M&A, private equity, venture capital and finance.