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Perspective:
Industry Issues

Preparing the sale of your business

Bob Wolter

Bob Wolter is a mergers and acquisitions advisor for CBS-Global, Green Bay, Wisconsin. He is a guest columnist for Cheese Market News®.

Selling a business is a complicated process, and it’s natural to have some concerns as you begin. While no deal is a sure thing, working with an industry-specific advisor in the dairy arena with deep knowledge and networking can increase the likelihood the business gets sold.

You need to remember that you’re selling the company and not yourself. Prospective buyers will want to see a strong supporting management team. This indicates the business will continue to be successful long after you’re gone. An easy question to ask is if you were to go on vacation for a month would the business run on its own? It is always good advice to be redundant before a business sale commences as this can become a deal breaker. A buyer should be buying your business and not you. You need to demonstrate that the business can flourish without you.

You need to begin thinking about ways to maximize profitability long before deciding to put your business on the market. Starting these initiatives in the middle of the sale process means you have missed the greatest opportunity to enhance the value. Ideally, you want higher earnings and profitability showing a trend up when it comes time to sell. Focus on achieving those operational efficiencies, cost reductions and other value enhancers in advance so they’re easily demonstrated to a buyer.

Having a good CFO in place is a good start to implementing strong financial controls. Take time to really understand your business operations and look at profitability from an objective standpoint. Reliable financial statements and accurate, timely reporting are attractive features that often influence a buyer’s decision.

Presenting your business with solid cash flows, strong management teams and lower capital expenditure requirements will position your business as an attractive acquisition.

Diversification is more than managing your stock portfolio. To many buyers, an ideal business has a broad customer base with little customer concentration. Some customer concentration will be an unavoidable reality for many businesses. Having signed contracts with customers and being on an approved list provides buyers with the confidence that the customers will be retained with the business after the transfer of ownership.

Buyers understand healthy businesses, but you need to show them the opportunities. Take the time to clearly articulate your growth story to buyers and help them understand the vision and goals you’ve set for the business. Describing the company culture can be a key to helping buyers understand what the future of the business and prospects look like.

To most buyers you are selling the future and future cash flows. Have a realistic and supportable five-year business plan. This points to the credibility of management and the quality of the business. Providing potential buyers with forecasts that are reasonable, believable and achievable can further demonstrate the underlying value of the business.

When it comes time to sell the business, you need to take the family out of the family business.

Bring to the surface and address any family issues where possible. Clean up excluded assets that may be included in the business and restructure the shareholder expense habits to be proactive about normalizing your books for the sales process prior to putting the company up for sale.

Working capital is often an overlooked source of value, but it can be difficult for an owner to firmly grasp.

Working capital is the life blood of a business and buyers expect to receive a normal level. Many private businesses have challenges with properly managing this cash in the business (Accounts Receivable +Inventory + Prepaids – Accounts Payable), and many have room for significant improvement. Managing the working capital requires both time and effort, but it can free up trapped cash and can lower the total level of working capital buyers expect to be delivered.

If you are working with an advisor to help you with the deal, it’s important that you the seller and the advisor talk about the company’s performance and valuation expectations early and often. You the seller need to have a very clear expectation of financial health of the business moving forward. Achieving the price is often based on how well you can present a clear picture of the cash flow. Many sellers run expenses through the company that have no bearing on the operation, and it’s crucial to get an understanding and present a clear but highly confidential picture of what those are.

A seasoned advisor can provide you with sizable savings and add value. Ensure that you have the right team of professionals helping you with accounting, tax, legal, transaction and mergers and acquisition matters. Each will have their own role in the sales process and can provide you with different perspectives and expertise in their respective areas.

Remember, exiting your business in a planned and profitable manner should be the last chapter of your business plan.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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