Selling Your Business Right

Wanting to sell and actually selling your business are two very different things. Once you’ve decided that you want out, a whole lot of preparatory work goes into making your company saleable in investors’ eyes. By not covering all the bases, you stand a significant risk of drawing either weak or no bids. Let’s take a closer look at what it takes to make that once-in-a-millennium deal.

But before that, a quick word about buyers. There are basically two types of suitors for any business on the block. The first type is the financial buyer, who looks for opportunities to buy out companies mainly using debt financing – this buyer will therefore select companies with adequate cash flow to service the debt.

A majority of buyers are financial buyers. Since their major interest is to sell the business at a profit later, they are not likely to interfere in the day to day management of the business.

The other type of buyer is the strategic buyer – by definition, this buyer is looking to add value to any other existing line of business. Make no mistake, this buyer will know the market as well as anyone else, and will therefore negotiate hard on price.

Such a deal is consummated only if there are synergies between your company and the other. If you sell out to a strategic buyer, be prepared for at least some changes in the way your business is run.

Regardless of the nature of the acquisition, financial statements play a pivotal role in any buyout deal. And audited statements carry a lot more weight than those that are not. Your past records will be analyzed threadbare, and any future projections will be challenged – be prepared to defend like crazy!

The subject of financial scrutiny and necessary due diligence in buyout deals is far too elaborate to cover here. However, we’ll leave you with a few tips to get you started:

• Don’t slack off. Keep all your statements in order, and complete them on time. A simple matter of forgetting to meet a tax deadline can make a perfectly above board company look suspicious.

• Go for precision. There’s no room for fuzz here. Make sure the numbers are accurate and comprehensive. That’s precisely why audited statements command respect.

• Get real. Valuations approximating or exceeding revenue are the stuff of dreams. Be reasonable in your expectations, yet don’t sell yourself short. Be sure to factor in intangible, yet important assets such as intellectual capital.

• Get into shape. Trim the flab before you go looking for buyers. If certain product lines are a drain on the rest of the company, get rid of them first.

Finally, timing is everything. You may have done everything right, but if the market’s a mess, your business won’t fetch a tidy sum. Don’t jump into any deal without understanding market sentiments beforehand.