Making Cents: Preparing a business for sale
By: John P. Napolitano, CFP®, CPA, PFS, MST
It is estimated that millions of baby boomers will try to sell their business over the next decade. Ranging from Mom and Pop shops to multi-million dollar corporations, the steps taken to turn your business into cash are very similar. If you feel that your business is simply too small to follow this outline, you may be right. But even the small business who can follow these steps may find a better buyer.
The first step is to make sure that you have quality financial records. Financial statements that are either audited or reviewed by an independent firm will be better than just copies of tax returns. The financial statements will be prepared using Generally Accepted Accounting Principles (GAAP) and be comparable year over year. If you are counting on undocumented cash receipts adding to the value of your business, guess again. You’d be better off coming clean with that revenue and showing it on your statements and tax returns. It’ll improve the selling price and keep your integrity as a non-issue for any potential buyers.
You also may want to re-cast your profit and loss statement to eliminate costs and expenses that would end in your absence. That may include a car or two, or other expenses that would not incur if you weren’t carrying the company card around.
Clean up your personnel files. Having comprehensive personnel files can make a potential new owner more comfortable with the relationships that you have with your employees. Good personnel files will include salary history, job description(s), evidence of employee reviews and any disciplinary action that may have occurred.
Create an organizational chart showing who is significant to the operations of your business. It is best if you have detailed job descriptions for everyone on this chart. If you feel that your employees are key to selling the business, you should take some of the essential people under your wing and make them aware of your intentions. You can give them bonuses to help complete the transaction and even for staying on with the new owner to the extent that it helps your selling price.
Ensure that you are well prepared in case you don’t make it to the finish line. Just because you become disabled or pass away pre-maturely doesn’t mean that your business has no value. If you have a solid succession agreement with your staff detailing who does what, and what’s in it for them, even your bad health or early demise won’t completely derail a sale of your business.
Get an independent valuation of your company and have an idea what an independent third party thinks your business is worth. Some business brokers or investment bankers have valuation services that are independent of them selling the business. In fact, a good firm will not only value your business today, they’ll tell you the things you can do that are specific to your business that may help to increase the sale price when it is time to sell.
John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200.