SPECIAL: The smart way to sell your company
For corporate and individual owners looking to sell a division, subsidiary or a family business, having...
For corporate and individual owners looking to sell a division, subsidiary or a family business, having the right information available when an offer comes along is crucial.
First, if a decision to sell has been made, it’s important that the selling principals realise the full value of the business. In order to do this, senior executives must properly prepare the company for sale. Gathering together all of a company’s detailed business records and history for potential suitors (who have signed ironclad confidentiality agreements) remains one of the toughest jobs that the company for sale faces.
While each company and situation is unique – not to mention that it would be difficult to cover all of the possible combinations of financial statements and schedules that may be requested by the investors or buyers – here are some guidelines on how to go about organising this vital information.
The most important documentation to have readily available and organised for review is a company’s financial statements. Generally, it’s best to have at least four or five years of complete financial statements ready, including profit and loss (income statements) and balance sheets. An acquiring company will analyse these statements and develop side-by-side spread sheet comparisons so that prospective suitors can review a company’s multi-year performance at a glance.
The next important step in the information process is to have a sales history on the company. Most companies will want to set this up by customer (or in a confidential code), providing both unit sales or activity and net dollar sales on each load or transaction. The root question here is “Where are the sales coming from?” If your company has multiple income streams from the various divisions or cells within your corporation, you will need to break down your income by source by year. If your company relies on “brokers”, you’ll need to organise your sales data by this source, as well.
A current listing of inventory and accounts payable and accounts receivable is a must. Also valuable is a list of owner and/or key executive compensation, listing not only the owner’s salary(s) but also bonuses, pensions, life insurance policies, cars, perks and all other company-paid personal benefits. This information is crucial in determining what the company’s actual cash flow is, and can significantly influence the purchase price.
A set of pro-forma sales and profit projects looking down the road at least one year is essential. Buyers need to understand where their payback is coming from.
A company with substantial physical assets should have full appraisals done on these assets before moving into this process. There’s no better way to end a discussion on the value of your equipment with a potential suitor.
Just as you would do for your own business plan, your acquisition prospectus should contain a mission statement that, in a few words, encapsulates the purpose and direction of the company. Your presentation should include a brief but thorough business history on the companies and markets you’ve served. Also, prepare a complete marketing plan including, but not limited to, your sales organisation’s programs, including compensations and costs.
Any prospective suitor should want to see your current sales literature and some information on markets that you’re hoping to penetrate.
One very sensitive matter is to guard your company’s customers. Until a serious intention has been expressed, this information should be kept confidential.
Licenses, leases and contracts
A large part of what makes a typical company worth pursuing is its important contracts and obligations. These should be easily available, including leases, notes, liens, loans, agreements, contracts, licenses, employment agreements and other important contracts.
You’ll need to provide a prospective suitor with short (no name) resumes on your key managers. A complete management chart annotated with salaries and job titles is important, as well.
Many sellers may be thinking that this level of business investigation may be obtrusive and dangerous for you to reveal – but armed with a strong confidentiality agreement, you can safely provide the prospective suitors with sufficient details to analyze the value of your company.
If you don’t intend on selling your company for a number of years, so much the better that you start keeping the kind of records that prospective suitors will eventually ask you for. There is no benefit to sellers in holding back information and making the buyers pull it out piece by piece.
The best negotiations are quick and smooth. A prospective seller can only negotiate the purchase price when they have provided the prospective suitors with information to fully evaluate the company.