Selling your business doesn’t have to feel like online dating, but for many sellers the experience is fraught with the same kind of uncertainty and confusion. They find themselves wondering, “What exactly do buyers want to see before buying my company?” Working with a merger and acquisition advisor is an excellent way to take some of the mystery out of this often-elusive equation. In general, there are three areas sellers should focus on to make their businesses more attractive to buyers.
Area #1: Quality of Earnings
The bottom line, no pun intended, is that many accountants and intermediaries can be rather aggressive when it comes to adding back one-time or non-recurring expenses. Obviously, this can cause headaches for sellers. Here are a few examples of non-recurring expenses: a building undergoing foundation repairs, expenses related to meeting new government guidelines, or legal fees involving a lawsuit (or paying for a major lawsuit). Sellers will want to emphasize that a non-recurring expense is just that, a one-time expense that will not recur, and not be a drain on the company’s actual, real earnings.
The simple fact is that virtually every business has some level of non-recurring expenses each year; this is just the nature of business. However, by adding back these one-time expenses, an accountant or business appraiser can greatly complicate a deal, as he or she is not allowing for extraordinary expenses that occur almost every year. Add-backs can work to inflate the earnings and lead to a failure to reflect the real earning power of the business.
Area #2: Sustainability of Earnings
It is only understandable that any new owner will be concerned that the business in question will have sustainable earnings after the purchase. No one wants to buy a business only to see it fail due to a lack of earnings a short time later, buy a business that is at the height of its earnings, or buy a business with earnings that are largely the result of a one-time contract. Sellers can expect that buyers will carefully examine whether a business will grow at the same rate, or a faster rate, than it has in the past.
Area #3: Verifiable Information
Finally, sellers can expect buyers will want to verify that all information provided is accurate. No buyer wants a surprise after they have purchased a business. Sellers should expect buyers to dig deep to ensure there are no “skeletons” hiding in the closet. Whether it is potential litigation issues, potential product returns, or a range of other potential issues, you can be certain that serious buyers will carefully evaluate your business and verify all the information you’ve provided.
By stepping back and putting yourself in the shoes of a prospective buyer, you can go a long way towards helping ensure that the deal is finalized. Further, working with an experienced merger and acquisition advisor—like those at EastWind Business Solutions—is another way to help ensure you anticipate what a buyer will want to see well in advance.
Copyright: Business Brokerage Press, Inc.
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