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RETAIL OPERATIONS By Eric Kern, vice president at Allegiance Capital Corporation Five things you need to do now to prepare your company for sale Selling Your Company T he number one mistake business owners make in selling their company is not preparing soon enough. Whether you want to sell your company in a year, five years, even ten years and beyond, there are five steps you need to take right now that will maximize your company's value. These issues are critical. Proper preparation will: enhance the value of your company, make the transaction flow more smoothly, and avoid pitfalls that often terminate transactions midstream. Clean Up the Financial Statements "Clean" financial statements doesn't just mean that all the numbers add up and you know you can make payroll. Buyers expect: detailed forecasts, budgets based on those forecasts, and a "Quality of Earnings" report that validates your EBITDA calculations. This includes cleaning up the balance sheet and operating slack, and eliminating personal expenses that have been paid for by the company. There are even firms that provide temporary CFOs to manage this process and to prepare companies for sale. Investment banks often take advantage of those services to get a seller's finances up to date and ready for detailed inspection by prospective buyers. Having great financials keeps the sales process moving smoothly; the reverse causes all kinds of delays, leading to deal fatigue on both sides and less likelihood of a successful transaction closing. One of the biggest financial issues we often see is buyers who look at financial statements differently. They want to see how each individual product or service that you provide contributes to the overall success of the company. Often, owners just aren't collecting detailed financial data and keeping records broken down to that level. For example, if you operate a company that provides fuel oil and other services, a potential buyer may want to see two separate sets of financials for each operation to determine, which is operating most efficiently and contributes the most to the bottom line. Take a look at your financials through a buyer's eyes and make sure that you collect and analyze data the way an acquirer will in their due diligence. Create a Great Management Team Some sellers think that because the buyer is taking over 20 MAY/JUNE 2013 ownership, they're also taking over management, so the company's current management team is irrelevant. That couldn't be farther from the truth. Financial buyers, like Venture Capital (VC) funds and Private Equity Groups, want to invest in companies, not run them. These investors realize the seller has created a successful operation and they need your team to maximize the return on their investment. Eric Kern is a vice presiThe investors may bring in some seadent at Allegiance Capital soned experts to add value to your board Corporation with approximately 15 years experience of directors, or provide a professional sales in investment banking, executive if you don't have one, but they're commercial banking and not going to jump in and immediately take consulting. During that time he has facilitated, advised, over. Strategic acquirers or corporations or closed on over $600 milwho purchase smaller companies operate lion in transactions involving privately-held and closelythe same way. They need your current held businesses. His busimanagement team to help transition your ness perspective has been shaped by experience with company and integrate it with theirs. literally hundreds of busiIf top management does want to walk ness owners and managers away immediately, or in the near future, representing companies ranging from start-ups and competent successors should already be small businesses to Fortune chosen, groomed and in place, ready to 500 companies. Ph: 214-217-7757 or e-mail take over to minimize disruption. Ideally, ekern@allcapcorp.com your company would have a well-developed executive team of competent professionals who are capable of working together as a team. Have a Clear Strategic Focus Your company should have strategic goals that are clearly communicated. Employees should know your goal is to become the number one fuel oil provider in your region, and how you plan to achieve that goal. This is what Jim Collins, author of Good to Great and Built to Last, calls a BHAG: a Big Hairy Audacious Goal. His research found that companies with a very clear focus on the value-add they bring to their industry far outperform their competition. Your entire company should understand why it is the best at what it does. It should be no surprise that those companies are worth significantly more to buyers, as well. If it's important to the company's health and growth to explore a new strategic direction – do so, but don't try to sell your company at the same time. Buyers love a stable NPN Magazine n www.npnweb.com