This is the third in a series of articles outlining the steps any business owner can take to maximize the value of his/her business when it comes time to sell. If you’d like to see previous articles in this series, visit our website at www.lmaallc.com. If you’d like a copy of the complete list of value drives, e-mail me directly at mertel@lmaallc.com and request the Value Drivers list.
- Clean Books & Records
There was a time when buyers and lenders would accept the seller’s list of add backs almost regardless of how lengthy or convoluted, so long as they were well documented. Today, buyers and lenders are much more critical and selective, and sellers would be well advised to begin cleaning up their books, records and add backs a couple of years in advance of the date they would ideally like to sell, so the years that will receive the most attention will be reasonably clean.
- Current AR’s, AP’s & Inventory
Bottom Line: Buyers will not pay full price for past due receivables, or last season’s inventory. All businesses would do better if they kept their receivable, payables and inventory current. If your business has any of these issues, you would do well to convert this out-of-date inventory and receivables to as much cash as possible prior to putting your business on the market.
- Anticipate & Prepare for Buyer’s Due Diligence
Most of my selling clients tell me that the due diligence phase of selling their business was the most nerve racking and upsetting to them, because of the potential of turning up something that might scuttle the whole. A good bit of this can be minimized with proper planning. By anticipating what questions the buyer will have and what documents he/she will want to review, and gathering and screening these items in advance, a lot of the suspense and mystery can be minimized/eliminated.
- For the Right Buyer, Be Prepared to Carry Some Seller Financing
Almost without exception, sellers would prefer to get 100% cash up front when they sell their business. In my experience, however, when a seller insists upon those terms, it tends to make both the buyer and the lender needlessly wary, sometimes to the point of negotiating a deeper discount to the asking price. Even before the financial market meltdown of late last year, many SBA lenders were requiring the seller to carry at least 10% of the purchase price in a seller’s note. When you’re reasonably confident that you’ve met the right buyer for your business, you might seriously consider carrying some seller financing as a sure-fire way to lubricate any bank financing. After all, aren’t you more likely to come out ahead if you get 100% of your asking price with 90% cash at closing PLUS a 10% seller’s note, vs 100% cash at closing but only 90% of your asking price?
To be continued…
If you know of someone who’s thinking of selling or buying a business and who might benefit from a complimentary, confidential, consultation with us, have them contact me at: mertel@legacymandaadvisors.com.
By: Mike Ertel, Transworld M&A Advisors