Business Valuation Blog | Understanding Buying / Selling a Company

When your small business is targeted for acquisition, it can be both an exciting and stressful time. It is important to prepare for this scenario as you grow your company, so when the day arrives, you have the tools in place to facilitate the process. Here are a few tasks to consider updating now to prepare:

Organize Your Business Documents

The acquisition process is lengthy, but it will go smoother if your financials, taxes, and transactional records are in order. Both hard copies and electronic files need to be organized so a third party involved in the due diligence can easily access everything they need in support of the sale. Make sure all taxes, insurance, and benefits are up to date. Sort through all historic company documentation to ensure it is consistent with the preliminary data provided to the acquisition team. This will save weeks and potentially months of time and minimize any red flags that otherwise would be raised during this stage of the deal.

Obtain Pre-Acquisition Appraisals and Update Them With the Collaboration of the Parties

Before you dive deep into a potential sale, have appraisals completed on your business, equipment, and real estate. A valuation effort will be completed internally by the acquisition team based on the data you provide them, however, suggest an updated business and tangible asset appraisal be performed by a certified and accredited valuation firm. This will leave little to no doubt as to the current market value of your company and can be used for other purposes in the immediate future.

Find Trusted Partners

It is difficult to go through an acquisition by yourself, so make plans to identify trusted consultants who can assist you during the process. Business attorneys, appraisers, tax advisers, and investment bankers are some of the contacts you want to develop in advance of an acquisition. These partners can help you manage your expectations and take some of the burden off you while positioning your business for a successful sale.

Complete Your Own Due Diligence

While third parties can help you understand the market, you should consider doing your own research to better plan and understand the strengths and weaknesses of your company. Review recent transactions in your industry and identify trends. Try to determine the best type of company to acquire your business as a stand-alone operation or part of a larger firm.

Get Stakeholders and Employees on Board

While you may be ready to sell, not all company personnel and current investors will understand the decision. The process will run smoother if you communicate clearly to all parties affected by the transaction. Personnel and clients are part of the overall value of your business. By retaining these relationships going into the sale, you can avoid infighting that might sabotage the deal.

By taking these steps before an acquisition, you can properly position your company as the right fit for the acquisition firm, while navigating every step of the process with confidence and ease.

Valuation is essential during an acquisition, regardless of which side of the deal you find yourself on. The acquisition process can be lengthy, and there are several things you will need to prepare for, including engaging a certified appraiser to complete a current valuation of the business.

Documents at the Ready

On the seller side, the overall process will go more smoothly if the company’s financial statements, taxes, and related business documents are organized and ready for review. This will give the buyer the utmost confidence that they are making the right decision moving forward with the transaction. It will also create an efficient and effective transition.

These steps greatly assist in the appraisal process as well and can ensure the valuation is being analyzed with every piece of data available.

Work with Trusted Associates

You can't go through an acquisition alone, so before you seek buyers, find the right people to help you through the process. This may include a business lawyer, a tax adviser, a financial professional, and a certified business appraiser. These partners can help you manage expectations throughout the acquisition process and take some of the detailed busy work off your plate.

While your associates are assisting you, take the time to do your own research to better understand the market and how your company fits into the larger industry picture. Seek to view the transaction from the buyer’s perspective. This may include a review of any similar deals in your markets and other companies that commonly acquire in your industry.

Don’t Put Off the Appraisal

As a business owner, you are probably a little biased in calculating your company's value. You may be emotionally attached and not looking at the situation objectively. An independent valuation of your business will help you see things subjectively, so you can better understand a realistic range of value in the current market. Review the appraisal carefully and don’t be afraid to ask questions about the valuation. When you understand why your company was appraised at a certain price and what factors affect value, you will be a stronger negotiator.

In summary, by taking these steps before an acquisition, you can put yourself and the company in the best position possible, while navigating each step of the acquisition phase with confidence, thus maximizing the chance for success in the ultimate transaction.