Are you thinking about selling your business? Some business owners hear this question and respond, “No… well, not any time soon anyway.” But, if the answer is yes, even if you don’t plan on selling it soon, the time to start planning is now. If you think that selling your business might be in your 3-year, 5-year, or even 10-year plan, start getting the pieces in place now. Preparing ahead of time makes the process go more smoothly and quite often helps owners to get more value out of the sale of their business.
It’s never too early to plan for selling a business because there are a lot of steps that need to happen before coming to the table to sign the paperwork. Getting your financial house in order involves cleaning up your books, assessing the overall financial health of your business, putting together the information that buyers will need to enter into an agreement, working through the details of the deal, and then closing out the sale. From the early planning stage to final sale completion, the whole process can take several years to complete.
In addition to relying on expert advisors for advice on the sales process, as well as the legal and tax considerations, let’s walk through the financial steps you should take to achieve your goals when selling your business.
Getting Your Books Ready
Business owners always ask, "When do I need to get my books ready for a business sale?" The earlier you can start preparing, the better. Ideally, you will start this process at least 1-2 years before you sell. Cleaning up your books is the earliest part of the planning stage and the activities involved here will include:
- Separating personal finances from the company’s finances.
- Organizing financial records.
- Reviewing and cleaning up financial statements.
- Documenting assets and liabilities (including intellectual property).
Remember though, your books should be kept in good order through each of the subsequent steps of selling your business as well, which means cleaning up your books is not a one-time activity you can do before you sell.
Understanding the Broader Financial Picture
Getting your books ready is a key first step when selling your business, but it’s not the only financial preparation you will need to do. You also need to understand your company’s broader financial picture – everything that affects how it makes money and how much money it makes. This should be done in the months before you sell so that the information garnered will be as accurate as possible. This is the later part of the planning stage and activities involved here will include:
- Reviewing current customer contracts and vendor agreements.
- Analyzing the P&L statement to ensure it accurately conveys the company’s profitability.
- Undergoing a formal business valuation.
- Working with a tax advisor to determine the best strategy to minimize your tax liability.
With your financials in order and a complete picture of the company’s financial position determined, you can then compile the information that prospective buyers will want to see to make an offer.
Preparing Financial Information for Buyers
Now that your planning is complete, the early part of the selling stage can begin. When you are ready to sell, you will need to utilize experienced financial leadership to prepare key financial information for the buyer, including:
- Financial reports for the last 3-5 years.
- Tax return records.
- Bank and credit statements.
- Employee and payroll records to prove labor law regulation compliance.
- Benefits cost information.
- Proof of business insurance policies.
- Physical inventory counts.
- Reasonable growth projections.
The goal in providing each of these items is to convey legitimacy and portray an accurate picture of the company’s overall financial health to attract and inform a buyer. As such, you should always ensure confidentiality is guaranteed through the signing of an NDA (non-disclosure agreement) before sharing any of this information with interested parties.
Navigating the Sale
At the heart of the selling stage your financial leadership will spearhead activities such as:
- Preparing a seller’s disclosure.
- Complying with due diligence activities.
- Entering into negotiations.
These activities ensure all relevant information has been reviewed so that a mutually agreed upon deal can be reached. Then, post-sale activities and leadership transition work will be done to transfer the business to new ownership.
When you are preparing to sell your business and going through the steps needed to complete a business sale transaction, leaning on an experienced CFO is vital throughout the entire process. At CFO Selections we have a team of highly experienced consulting CFOs ready to help guide your company through this process. Using our fractional CFO consulting approach, we can provide as much or as little business support as you need when selling a business. Whether you are preparing your business to be sold so that you can retire or whether you are looking to move onto your next business venture, we have the outsourced CFO services you need to help guide you through the process. Let us come alongside you to help make the process easier and get the value you deserve out of your business!
