Enhance the Value of Your Company While You Stage Your Exit
Thinking of Selling Your Business? Below is a list of ways you can enhance the value of your company while you stage your exit.
Clear up any loans made by the company to stockholders, and any loans made by stockholders to the company. At least make sure they are repaid on schedule.
Keep as much of the balance sheet in current assets as you can. It’s a lot harder to retrieve dollars that are invested in fixed assets.
Avoid writing off personal expenses and unreasonable perks through the company.
A company is more valuable if it has a special market niche because that makes it less vulnerable to competitive attack. Less risk justifies a higher price!
Trim down excessive salaries.
Owners should gradually start transferring their own responsibilities to other employees. Buyers may question whether anyone else can really fill the owner’s shoes. This quells those doubts in advance.
Consider deferring unnecessary bonuses if it helps you demonstrate a trend of increasing earnings.
Don’t be afraid to leave cash in the company as retained earnings. You may pay a little more tax as a result, but the business will look like a better risk to both buyers and lenders because those reserves put the company on better footing to withstand adverse market conditions in the future.
Try to reduce fixed overhead expenses as much as possible without creating problems with inadequate management, deferred maintenance and tooling. Buyers get nervous when they see a company with high fixed costs.
Make sure that all of the income shows up on the company ledgers. If it doesn’t, you probably won’t get credit for it.
Consider longer depreciation options. As a private company, your goal has probably been to hold down stated profits by using faster write-offs. Your buyer, on the other hand, will assign more value to the company if the bottom line is greater.
Polish your image. Spend some money to improve your offices, and at least the appearance of your communications…
Recruit a Board of Directors that includes some distinguished individuals. Not only will you benefit from their wisdom, but they will enhance your company’s image by lending their name to it.
Consult your accountant for “tax-advantaged exit strategies”.
Get adequate insurance to ease the concern buyers might have over potential liabilities that may carry over to them after the sale.
If there is real estate involved, remove any underground tanks and clean up any environmental contamination in advance.
Hire a locally prestigious accounting firm to prepare audited financial statements that include their “unqualified opinion”. These should cover the past 3-5 years.
Develop a 5-year strategic business plan. This will give the buyer a picture of your company’s history, its strengths, and its future potential.
Source: Unlocking the Value of your Business – Author, Tom Horn
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