When selling your business, advance planning and strategic action can make a big difference toward helping you obtain the maximum value for your firm. The sooner you begin your preparation, the better.
Here is some practical advice that I have learned throughout my career leading the purchases and sales of middle-market businesses in South Florida and around the country. These tips are not only helpful if you’re planning to sell — they’re also generally good business practice.
• Hire an effective public relations firm. Positive news coverage in credible, top-tier media outlets that reach current and potential customers as well as buyers can be invaluable in terms of elevating firm and brand awareness, securing credibility for your business and even piquing interest from potential buyers. Although directed to enhance the business, raising visibility is important. These days, depending on the nature of your business, social media might be an appropriate tool to leverage as well.
• Get your financial and accounting records in order. It is imperative for you to be able to give potential buyers a clear, accurate snapshot of your historical financial results and condition. Without this, you won’t be able to get as much for your business. You’ll have to do all this paperwork anyway, so the sooner you get your financial house in order, the better. Preparing a budget is helpful too.
• Review agreements with your customers. Do you have long-term contracts that will bring recurring revenues to the purchaser of your business? Do your contracts with customers have special terms, such as requirements that you personally provide service to the accounts or change of control provisions, which may have an impact on the longevity of the contracts when you’re no longer involved with the business? Make sure you review and structure agreements in advance so they will enhance the value of your business and appeal to potential buyers.
• Review your leases. Do you have a long-term lease that new buyers will have to continue, or do you have a short-term lease giving buyers maximum flexibility? This can enhance or decrease the value of the business. I recently worked on a deal in which a long-term lease for excessive space became a roadblock to completing the deal. Sometimes, a long-term lease at favorable rates can enhance the value of a business.
• Review agreements with your suppliers. Again, like in No. 4 above, you need to understand whether you’re locked into agreements with suppliers with which the new owner(s) of your business will be required to comply. Depending on price and terms, a long-term supply agreement can be an asset or a liability. If there are any agreements that you don’t consider beneficial to your business, then now would be a good time to try to terminate them or address the issues to avoid turning off potential buyers.
• Review your insurance coverage. Depending on your business, liability coverage and tail coverage might be very important. Consult a good insurance agent to evaluate your existing coverage and file any gaps that might exist.
• Do tax and estate planning. Work with qualified lawyers and accountants who can help ensure you have structured your ownership in the most tax- advantaged way in the event of a sale. Again, the sooner you do this, the better off you’ll be.