Getting ready to sell your business can be exciting but also challenging. Whether you’re retiring, pursuing a new opportunity, or planning a major change, a successful merger and acquisition (M&A) process requires a lot of time to prepare in order to maximize your business value and ensure a seamless transition.
The following are key steps and considerations to help you develop a comprehensive plan to sell your business.
- Establish your timeline. Determining the ideal time for you to sell will guide your entire preparation process. Consider the earliest and latest dates you would be willing to close the deal.
- Organize and review your financials. Your internal financial records should align with your tax returns and any financial statements issued by your certified public accountant (CPA).
Next, review your bank statements to verify that all transactions are properly recorded. Review your accounts receivable and accounts payable aging schedules to limit any items older than 90 days. Also, make sure all capital expenses are accurately reported on your balance sheet.
Cleaning up these issues will ensure that your financial statements accurately reflect the company’s financial position before a sale.
- Maximize your business valuation. To attract top offers, you will need to increase margins and profitability and demonstrate at least three years of strong financial performance. Reducing any customer concentrations will also add appeal and minimize risk.
In addition, develop a detailed budget and a long-term forecast that outlines the company’s expected future growth while documenting any assumptions made.
You should also have a clear understanding of your normalized adjusted EBITDA, which stands for “earnings before interest, taxes, depreciation, and amortization.” EBITDA is a widely used measure to assess a company’s profitability, to determine the price of a corporate transaction, or as a benchmark to compare the performance of multiple companies.
Another consideration is to strengthen your management team. Putting capable leadership in place prior to the sale makes the business more appealing, sustainable, and valuable to potential buyers.
- Repay any debts. Set up a plan to pay off any outstanding debt before a potential sale.
- Establish your business processes. Well-documented processes will allow the business to continue to run smoothly under new ownership.
- Build your team of professional advisors. Having a team of accountants, attorneys, and consultants will help ensure all legal, financial, and tax considerations are addressed.
- Understand the tax implications. Before selling, consult with tax professionals to understand a potential sale’s financial impact on the business’s tax liability.
Selling a business requires careful attention to detail. By following these guidelines and working with experienced professionals, you can navigate the complexities of the sale process with confidence. If you are considering selling your business or preparing for it in the future, reach out to 1RDG by calling 585-673-2600 and learn how we can assist you through this process.