Prepare Your Business for Sale

Do you want to spend more time on the golf course? Or with the kids or grandkids? Maybe you just want to cut back on your hours? Or maybe you have a different idea that you want to pursue? Now is the time to start preparing your business for a sale.

Most potential buyers will want to see 3 years of historic financials/tax returns. This means that if you want to sell as soon as you can and the business hasn’t been performing as well as you know it can, you need to spend two years improving the financial performance before presenting it to potential buyers. Selling a business is a complicated process that usually takes at least a year from start to finish. In addition, most buyers will want you to be involved for a period of time after the sale. They will typically ask for 2 years.

From the time you start to look for a business exit strategy to actually walking away will likely take you 3 to 5 years including preparing the business for sale, selling the company, and transitioning the business to a new buyer. If you are getting burned out, now is the time to start.

Preparing your business for sale involves two main components – maximizing the value of your business and “cleaning up the business,” or removing any obstacles to getting a deal done.

How Do You Value a Company for Sale?

Buyers look for different things in a business but at the end of the day they are looking for earnings and cash flow. Maximizing value of your business can be summed up simply as maximize both short-term and long-term profitability and cash flow. Some things investors look for are:

• Strong Revenue Growth (10%+)
• The “quality” of the revenue – Is it recurring? Do you have long term contracts in place with customers? Do you have significant repeat business? Or is your revenue “lumpy,” or project based?
• Customer Concentration – Do you have one large customer? Any customer that accounts for more than 10% of revenue is a red flag. Any that accounts for more than 20% is a serious cause for concern. More than 30% is likely a deal breaker.
• Do you have a backlog with preorders, purchase orders, etc.
• Are your gross and net margins growing or shrinking? Why?

It is vital to develop a plan to get from where you are to where you want to be. We understand that strategic planning often falls into the “important but not urgent” category and therefore is often left undone. Hiring us will take much of the burden off of you and and allow you to run the business.

Cleaning Up Your Business

In order to prepare your business for sale you also need to clean up the business. Some things to consider are:

• Do you have a good management team in place that can run the business when you are not there? What would happen if you were gone for a month?
• Are you the primary contact with customers and vendors? Can you transition the relationships?
• Is the company completely separate from your personal life? Does your company pay for your and your spouse’s car lease, country club dues, phones, vacations, etc.?
• Does the company own the real estate or is it owned by a separate LLC?
• What does your cap table look like? That is, is the ownership clean or do you have a bunch of small investors, or convertible debt, etc. Try cleaning it up.
• Have you looked at your most recent D&B report, online reviews, etc?
• Have you kept track of your inventory properly? Has it been verified by an outside party?
• Do you have all your contracts signed and in good order?
• How are your accounting systems? Are your financials compiled? Consider getting your books reviewed if not audited.
• Make sure that all of your trademarks are registered, everything you can patent is patented, etc.
• There are many more things – are you in compliance with all licenses, software, etc? Have you been keeping board meetings minutes? Etc., etc.

There are a million things that a potential buyer looks for in a potential acquisition target. Do you know what they are? We do. Do you have a plan to get there? We have helped prepare dozens of businesses for sale and have a very good idea what buyers are looking for.

To learn more about how Ampure Capital can help prepare your business for sale please fill out the contact form or call (213) 537-3580.