Timing, Preparation Needed For Business Sale

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Reprinted From: The News Journal
Written By: William H. Master, CPA
Selling a business may be one of the biggest and most stressful transactions for an owner.

Perhaps the owner is ready to retire, needs cash, suffers poor health, or is just restless for a new venture. Whatever the reason, selling a business can transform years of hard work into a substantial sum of money. Planning should start at least three years before initiating the sale. Preparing the company for a sale and timing are crucial to get the most value.

To get the business in. good condition for a fast sale, begin by improving the income statement and balance sheet.

Operational processes should be streamlined and documented. Define the customer base. The plant and equipment should be spruced up and in good order. Incentive programs should be developed to retain key employees. Give notice to problem employees and, if they don't improve, terminate them. Resolve any claims against the business.

Develop a brochure to highlight the company's most attractive points. The brochure should include a description of the company's products and services, ownership breakdown, organizational structure, sources of raw materials, distribution channels, pricing, marketing strategies, patents, a list of physical locations, a list of equipment, number of employees in various departments, competitive position, target markets.

Financial information should include a summary of historical operating results, balance sheets for the last five years, and three years of financial projections. Describe any unusual features or events that affected the financial statements or that would change under new ownership.

Once the company is prepared for the sale, timing is another important factor to insure the highest price. In most cases, the best time to sell a business is when the stock market is bullish or at the peak of the industry business cycle or when recent sales and profit history demonstrate continued growth.

The business owner should be able to command top dollar for the organization if there is a three-year record of increasing sales and profits. In addition to commanding a higher price, companies with strong historic growth records generally sell much faster.

The stock market, industry cycles and recent company performance all have a strong influence in determining how much the owner will be able to get for the business and whether a viable buyer will be found. If all these three factors are on the upswing, the company should command a high price.

However, if the owner must sell during an unfavorable cycle or when profits are down, a fair price can still be attained. In this case, deferred payment terms may be attractive to buyers since they can delay payment and take more risk.