How To Prepare Your Company For Sale

There are many questions that need to be addressed when beginning to consider if your business is ready to sell.  These include:

• What is my target exit date?
• What net sales proceeds will I need to meet my retirement needs?
• How long will it take to build the business value required to achieve the net proceeds?
• Will I sell to family, management or a third-party?
• What will be the best corporate structure to achieve my goal?
• What family and estate planning issues will need to be addressed?
• How will I invest the proceeds to meet my monthly financial requirements?

These are all difficult questions and need to be addressed well before the succession planning process.

Just like a house, business owners often let a few routine maintenance issues fall by the wayside. And just like when you sell your house, a little time spent on maintenance can add significantly to the price received.  Would you prefer to sell a fixer-upper or a mansion?  The same attitude should be directed towards your business.

The following are some of the matters that will be addressed with your Exit Readiness specialist well before you get to the point of having potential buyers knocking on your door.

a) Ensure Important Documents Are Up To Date

During the Due Diligence process, you will be required to provide access to many documents. Complications can arise in the sale process if items such as your minute book are not up to date or are incorrect. Also you should review other records such as contracts (employee, customer, supplier, etc), insurance policies, leases, policy and procedure manuals, job descriptions, etc. and ensure they are up to date. Not only does this provide the impression of a well-managed organization, but it will help the sale process run more smoothly.  It is also extremely important to have signed contracts with key employees.  This can be as important to the buyer as an occupancy lease with reasonable terms.

b) Review The Status of Your Filing Requirements

Ensure all filings are up to date and you have copies of various tax and other assessment notices available. One area every buyer of a corporation is concerned about is the possibility of skeletons in the closet. Because of the chance of audits, there is risk to the purchaser and likely there will be a negotiated hold back amount to reduce their exposure relating to income, sales and commodity taxes and payroll related accounts (EHT, WSIB, etc).

c) Ensure Your Facilities Are Presentable

Whether there is real estate involved in the sale or not, the potential purchaser will be attending your facilities. A clean and organized work environment can have a significant effect on the impression left with the buyer and just as important, your customers.  If real estate will be part of the package then it can also influence the price received.

d) Improve Profitability

There are three components to increasing the value of a business: profitability, sustainability of those profits and transferability.  Your Succession Planner will work with you to increase your revenue and profits while controlling expenses, thereby maximizing the profitability of the Company.  This will be done through the development of sales and marketing plans, complete with sales and marketing campaigns and processes to monitor the results of these campaigns.

e) Establish a Strong Management Team

In order to offer transferability to a potential buyer or successor to your Company, you will need to establish a strong management team.  In many situations, a business is so dependent on the owner of a business that the owner often has trouble taking holidays or days off.  This is one of the most misunderstood aspects of readying a business for sale.  The owner cannot be so tied to the business that the business can’t get along without him.   This could kill a potential sale.  One of the areas the professional Exit Planner will work on will be to remove the owner from this position and establish a management team that can operate without the daily “interference” of the owner.

e) Prepare Your People

The timing of when to inform employees of a plan to sell your business is a difficult decision. Reactions can vary and can complicate the process. Assuming there are key employees that a potential buyer might wish to retain, they likely should be informed at an earlier point so that you can ensure they can be retained. It may also be important so they can be actively involved in the process. The timing of informing other employees will vary depending on the circumstances (eg: will they be retained, will notice be required, etc.)

If you expect that the succession of your business will be to employees or a family member, you need to ensure they will have the required training and skill sets to manage the business after you are gone. Developing these skills and some important business relationships can often take many years. The time to start this development may be now.

Exiting from your business is likely to be one of the most important events in your life. Starting the planning process early is very important in order to ensure you satisfy your objectives and receive the best value. Talk to your advisors even if you think you may be continuing in your business for ten years. There may be things you need to start considering now. You want to be in that 25% of business owners that do have an exit strategy.