Business Valuation Blog | Understanding Buying / Selling a Company

As a small business owner, there will be times when third-party consulting services become a necessity in order for you to complete certain goals and accomplish plans made earlier in the year which are now becoming a more immediate concern. Whether that’s refinancing your debt, obtaining new working capital, buying out or adding partners, updating stock value, or any similar internal planning, there is usually a requirement to seek independent advice and reports to eliminate potential bias.

Engaging with a qualified business appraiser should be at the top of this list of external advisors given that their reports will be relevant in virtually all of these potential scenarios. Like everything involved in day-to-day operations, you want these longer-term projects to go as smoothly as possible and have an optimal outcome. What are some of the ways to increase the chance of this happening?

Start the Process Early

As with most business decisions, the longer you put them off, the less care and planning will be involved during the process. These goals may take months to complete so the earlier you start to take initial steps, the more time you will have to effectively work it from start to finish.

Ask For Advice

When working with valuation professionals or any other type of consultant, take advantage of their experience and expertise by asking a lot of questions. These advisors have been involved with hundreds of similar projects and can offer thoughtful advice on how best to work through the transaction.

Utilize Internal Resources

Whether it’s your company accountant, controller, finance manager, or other senior employees who may provide insight and another pair of hands, consider bringing them into the fold as part of your team to manage this project. Don’t take everything on yourself unless you have no other choice.

Provide Full Disclosure and Be Completely Honest

Have the advisors sign an NDA (Non-Disclosure Agreement) so you are comfortable sharing internal reporting documentation. Work with the consultants to break down these statements into a more realistic picture of your cash flow and growth potential. Don’t be afraid to discuss the true picture of your company’s finances as opposed to what might be limited to accounting or tax reports.

In summary, as a business owner, you are the expert when it comes to describing the history and future plans of the business. Getting the most out of your internal team as well as the independent advisors you engage will give you the best chance of an optimal outcome for these longer-term goals.

After years of creating, developing, and growing your small business there will ultimately come a time when you determine the next best course of action is to sell, whether that be in the open market or in a private transaction between employees, family members, or current investors. In all of these potential scenarios, there are a few things to include in the early stages which will give you the best opportunity for a successful outcome. Here are some of the more critical steps to consider:

Accounting Records and Client Files

Work with your bookkeeper, accountant, and/or controller to ensure all internal documentation is current and organized. These records will need to be accurate, easy to understand, and accessible to both you and potential buyers during all phases of the sale process.

Obtain an Independent Valuation

There are sure to be differing opinions on the overall value of your business. Subjectivity and personal feelings can’t be a factor in determining a reasonable and fair assessment. Look to engage with a certified and accredited appraiser who can work with you and your support team to develop a credible, defendable valuation of the company. The earlier you engage in this effort, the more control you will have in the process.

Hiring a Consultant or Business Broker

If the sale is on a private level with the buyers already identified, such as in the case of an employee purchase or family generational transfer, you will want to consider working with an independent business consultant who is familiar with these types of transactions. Try to avoid hiring someone you know personally or through other business dealings as it can create doubt as to their objectivity.

If you are going out into the open market in search of potential buyers, you should think about working with a business broker who can guide you through the process and take on much of the workflow involved in getting a sale completed. They will act as your exclusive representative and offer benefits in the way of identifying the right groups of purchasers and negotiating fairly on your behalf.

Make sure they have experience in your markets and industry and have a reasonable commission plan that isn’t too expensive. Don’t hesitate to research typical broker plans and interview a few different companies before you decide who to engage.

In summary, regardless of whether your business is being sold at a private or public level, the process can take several months to complete, therefore, the more you accomplish and set up in the first weeks will lead to a more efficient timeline and effective conclusion. All the years of hard work you’ve put in getting to this stage will reap its rewards with a sound game plan to successfully sell your small business.