For most entrepreneurs, selling a company can be one of the biggest days of their lives – the culmination of years, sometimes decades, of hard work and perseverance. Because you created your business and brought it to its ultimate success, you deserve to achieve the best possible outcome at the time of sale.
However, the planning for time of sale happens many years before the transaction. Just like it is easier to sell a home or automobile that has been maintained over its life, a business that has had good financial leadership will be much easier to sell when the time comes. Many business owners leave considerable value behind by failing to plan and ready the business well before the planned exit date. While we believe a fully functioning finance department is a Secret Weapon that can make your business successful at all points in its life cycle, let’s dig into a few ways in which finance plays a role in your company’s overall value:
Think of your financial statements as the window through which investors will see your business. If they are clear and transparent, buyers will have a favorable view of how your business runs. If they’re messy and disorganized, contain non-business expenses, show wild swings in results, or are hard to follow, buyers will assume there are undisclosed problems. At a minimum, they will take longer to review and verify the results. Because of this, they may not pay the value you are due – or worse, they could abandon the deal!
It’s crucial that financial statements be GAAP compliant and audit-ready (if not actually audited). Whoever buys your company will perform Due Diligence on your financial statements. If they find non-GAAP methods and other accounting issues, they may not pay top dollar due to the inherent risk of misstated financials. By keeping your books clean and compliant, you are ensuring that your buyer will feel confident in the solidity and value of the enterprise they are buying.
Buyers are interested in one thing – making profits. A potential buyer will be more attracted to your business if it shows growth and profitability, but will be especially interested in understanding the “story” behind the growth. A good CFO will help you to assemble the right metrics and information to craft a story that supports your financials and creates confidence in the business’s value.
Strong Balance Sheet and Working Capital
Businesses need assets to run. Keeping the right level of inventory, ensuring collections of accounts receivable, and using vendor liabilities to keep your balance sheet healthy are all crucial components of working capital management. Most of the non-cash assets of a business will be turned over with the sale, so it’s important that they be healthy, but not over what is necessary to run the business. It’s equally crucial that all of the balances in your balance sheet be related to the business. Mixing in personal assets and liabilities is always a danger.
Selecting the right deal team
When you sell your business, you’re going to need excellent bankers, advisors and lawyers to shepherd your side of the transaction. A well-versed CFO, having already helped you build the financial profile of the company, can also help you select the right team and foster communication between your team the the buyers' team to maximize results during the process. A CFO that has been involved in many transactions before is a great asset when evaluating your team’s qualifications. and managing the financial aspect of the sale.
Selling your business *WILL* cause a taxable event, but there are many ways to plan and structure the deal to avoid paying more than you have to. Having competent financial professional on your side early will help you to plan for tax consequences and support the tax positions between yourself and the buyer to ensure everyone is on the same page for tax purposes.
The Bottom Line
The bottom line is that a finance department is a vital part of every business, but is especially crucial when you go to sell your business. Early planning and preparation can yield a vastly different purchase price, thus allowing you to keep the monetary value of hard work you put in to building your company.
PPS Solutions is a builder of Fractional Finance Teams, providing professionals of all levels (including CFOs, Controllers, Accountants, Analysts, and Bookkeepers) to meet your business needs. By hiring a PPS fractional team, you get the Strategic Partnership of high-level financial thinking as well as the Administrative Support of a “back office” team. We provide entrepreneurs the ability to work on BUILDING the business rather than working on MAINTAINING the business.