What to do Before Selling Your Business to Maximize its Value

When you are looking at selling your business there is a lot to consider. However, the number one priority for businesses owners is typically maximizing the company’s value to get the most out of its sale. 

Two people shaking hands over a business deal.

Our partners over at CFO Selections have a number of financial resources meant for executive leadership, one of which breaks down the business sales process and explains why a CFO (Chief Financial Officer) is important during the sale of a business. As you get closer to selling, we would suggest reviewing that resource and reaching out to them if you need help.

However, today we are going to look at some best practices for creating and preserving value in your business well before you start going down the path of selling it. Our team of accountants will give some tips on what you can do financially to set yourself up for success as you get closer to selling. 

​The important thing to remember is that while these tips may be intended for business owners that are considering selling, they can help any company that is looking to maximize its value for any reason. Even if you have no intention of selling in the near future, getting your company moving in the right direction (or keeping it moving in the right direction) can make it easier to secure financing, establish new partnerships, recruit top talent, and provide a whole host of other benefits.

So, regardless of whether you plan on keeping your business for another 5 years or 50 years, get ready to find out how to create and preserve your business’s value:

Make an Exit Plan
If you plan on selling your business at some point, the first step you will need to take is to think about who you want to sell it to and when. As you consider stepping away you will have numerous routes you can take. Do you want to sell it to a someone inside the company or to a third party? Either way, the sooner you start planning, the better! Make sure you allocate enough time to plan for the sale. Trying to move too quickly can result in missing important steps and potentially selling for less than the business is actually worth.

As you envision what you want the future to look like, selling your business may be far out on the horizon, but it never hurts to start making a tentative 5-year, 10-year, or even 20-year plan. That way, when the right time comes along, you will be ready!

If you plan on selling in the next 3-5 years, you will need to get going right away. Determine if you need to bring in a CFO to have at the helm during the sales process. Typically, this is necessary for businesses with over $25M or so in annual revenue but is optional for smaller businesses. If your company is small enough that its current leadership will be handling the sale of the business, it will be important to take the next steps using your existing staff and supplementing as needed with outsourced accounting services. Be sure to choose an experienced accounting services provider that can meet your company’s fractional (part-time or short-term) needs.

Prepare Your Financials
Regardless of who is leading the charge, the best thing you can do to prepare for the sale of your business is to ensure financials are prepared accurately and in a timely manner to give a true picture of where the company stands financially. These financial reports will be the backbone of the sales negotiation – often making or breaking the deal. Messy, incomplete, or incorrect financials are the fastest deal killer because they can hint at incompetency or dishonesty occurring in the business.

Do not be worried if the balance sheet, income statement, and/or cash flow statement fall short what you had hoped for as long as they are accurate. Buyers will certainly take the company’s current (and projected future) financial position into account, but the most important thing that they will be looking at is the story that the financials are telling. Is the business on an upward or downward trend? Have the financials been correctly prepared or are they omitting items or misreporting information? What do the disclosures reveal about the broader picture of where the company is heading?

Improve Your Cash Flow
In conjunction with preparing cash flow statements, look for ways to improve your accounting and finance functions. Formalize policies and update processes to ensure everything is running smoothly before looking for a buyer to maximize your company’s value. But do not stop there! Regularly audit your existing efforts to look for ways to increase cash flow to make the business look as financially sound as possible. Commit to making incremental improvements in cash flow moving forward by improving forecasting, managing costs, and sustaining cash inflows. Lean on your Senior Accountant, Accounting VP, or Controller to drive the initiative to improve ongoing cash flow.

Monitor Your Results
As you adjust and adapt to keep sufficient cash moving through the business, monitor and analyze your results. A buyer will want to know exactly how the company is performing, not how you think it is doing. Keep tabs on business results from key drivers and understand how they are contributing to your top line growth. When bottom line results fall short of goals, determine which costs are bringing down profitability or which business drivers need improving to better position the company. This kind of financial analysis will be important for the day-to-day management of the company and also be instrumental during negotiations.

We have a team of highly experienced fractional accountants that can provide as much or as little financial help as you need before selling your business. When you need a consulting accountant to help clean up your books and prepare your financials as you get ready to sell your business, please contact us!