Katherine Welc, BridgeTower Media Newswires
A small business owner needs to run the business while keeping its potential sale always in mind. Unexpected life events, accidents and changes in the market may require the business to be put on the market quickly—often at a time when the owner least expects it.
Below are some simple tips an owner should consider to add value to their business today, positioning them to receive top dollar when it sells.
Ensure that the business can run well without you.
Many business owners have built the business themselves. Others who may not have started the business may become woven into the fabric of the business—sometimes to the point that it cannot run either at all or as successfully without them. This is detrimental to getting top dollar at the point of sale. The owner needs to ensure that the operations can be run by staff or management in place and that it is capable of standing on its own. Having key employees and a management team that can operate the business is a critical step in not only selling the business but also in planning for the any worst case scenarios. Intellectual property that is known only to the owner is far less valuable than that which is transferred with the business.
Write it down.
Have a written contingency plan. Identify the members of management who are capable of running the business. Have a comprehensive ownership agreement in place with provisions that spell out what do in the event of the owner’s death or the sale of an owner’s interest if there are multiple owners. Keep written policies and procedures manuals that cover the major aspects of business operations. Ensure that intellectual property of the company is protected with appropriate patents and trademarks. Also ensure that those patents and trademarks are being defended as necessary.
Maintain accurate accounting records.
Keep your financial information in order. At a minimum, maintain accurate internal financial statements and consider having annual financial statements prepared by an external accountant. There are various levels of service available—audits, reviews and compilations—but the presence of an external opinion and some level of assurance will instill confidence with potential buyers. Few things will kill a potential deal faster than the discovery of material errors when due diligence is being conducted.
Be upfront with buyers.
Be open and honest with any potential skeletons in the closet. These will more than likely come out during the presale due diligence and the later they do, the more likely that it will affect the deal. Be upfront about potential liabilities, litigation facing the business, etc.
Know what the business is worth.
Have a number in mind that is based on reality. Consider having an independent valuation done by an external credentialed valuation expert. This helps to take away the emotional tie to the business and validates an appropriate starting point for negotiations.
With some critical planning along the way, the sale of a business can be a profitable and positive one for the owner.
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Kate Welc, CPA, is a principal with Mengel, Metzger, Barr & Co. LLP. She may be reached at KWelc@mmb-co.com.
