In order to maximize the value of your business, it is important to start planning for the sale three to five years in advance, but it is never too early to start the process. Below are several items that will make your business more attractive to the market.
Financial Information – Timely accurate financial information going back a minimum of three years is important not only to buyers, but also to lenders. Although nobody likes paying taxes, there needs to be a “paper trail” demonstrating that the business can support the debt service, withstand a reasonable downturn in the economy, and provide a rate of return on investment. As many business owners are in the process of finalizing 2019 financial reports, now may be an appropriate time to have a conversation with your accountant to discuss treating some “discretionary expenses” as distributions of the company’s profit for the year.
Second Level Management – A good management team will generate a higher value when it is time to sell, because it minimizes the risk of the acquisition in the eyes of the buyer and their lender. It is intimidating for a buyer, particularly a first time potential business owner or a buyer without direct industry experience to acquire a business if virtually all of the intellectual capital is leaving the building at the end of the negotiated transition period with the former owner. Similarly, the risk increases for the buyer if the former owner has all of the relationships with the customers and vendors.
Diversified Customer Base – Ideally, no one customer will represent ten percent or more of the sales and/or profits. If any customer accounts for fifteen percent or more of the sales and profits, that tends to increase the perceived risk to the buyer. In the event that the concentration exceeds twenty percent, the value of the business is often discounted and there may be some structure involved in the transaction, such as a potential claw back on a note back to the Seller. Although it may be easier for the current owner to work with a particular customer, it is important to continue to develop a diversified customer base.
Documentation – Processes and procedures should be documented to provide for an ease of transition between the old and new management teams. Good documentation is an indication of good management.
Environmental issues – As a result of the significant liability associated with environmental matters it is important to know what if any environmental issues may be encountered by the buyer’s due diligence process. For environmentally sensitive business or if real estate may be involved with a sale, it may be appropriate to obtain a Phase I environmental report prior to going to market.
The foregoing represents some of the main issues that are typically important to a buyer, but each transaction is unique. Please contact us if you would like a confidential, no obligation discussion relating to your specific situation.
What Our Clients Have to Say About Out Services
In December 2019, The FBB Group successfully completed five transactions for our clients. Please see what they had to say about our services. If you are considering the sale of your business, we would welcome the opportunity to have a discreet conversation with you to discuss your goals and objectives.
“If you are looking to sell your business look no further. FBB owner Ron Chernak and associate broker Rob Amerine are extremely professional and fully supportive on both sides of the transaction. Rob executed the sale of our business and commercial real estate in separate transactions. Rob has excellent communication, thoroughness, and integrity which I found invaluable. The entire FBB team maintains superior organization, pride and determination to reach the goal. I would highly recommend FBB to any one of my friends or family.”
– Dale Kurtz
Former Owner, Automotive Service Center
“Working with FBB was an incredibly good experience. I was very impressed with the level of expertise, knowledge, effort that their team dedicated to me and the sale of my business. I want to especially recognize the level of
responsiveness that they demonstrated during the process; I know that they were all busy with many clients, but they provided me with the feeling that I was the only one. FBB met and beat my expectations!”
– David Bednarski
Former Owner, HVAC Business with Real Estate
“The whole transaction went smoothly, very professional and dependable.”
– Joel Shorey
Former Owner, Denver Industrial Service Business
“I appreciate the professional advice and counsel provided by both Ron Brasch and Ron Chernak regarding the sale of our two businesses, Haley Realty Inc. and Haley Maintenance Company. After forty years of business in Colorado Springs, I am very satisfied with FBB’s professional services and will not hesitate to recommend FBB to any business owner contemplating the sale of a business! Feel free to give my contact information to any prospect who wants to know my experience with FBB.”
– Charlie Oliver
Former Owner, Property Management Service Business
(originally published in the January 2020 eNewsletter)