RESOURCES

Basics

Preparing the Company For Sale

Plans to sell your company should be made well in advance of the actual sale. This will permit you the time to adjust accounting practices and demonstrate a three- to five-year track record of maximum profitability.

Nearly every privately held company is operated in a manner that minimizes tax liability. However, prospective buyers do not pay for creative methods you are using to lower your taxes. As such, the same operating techniques and accounting practices that minimize tax liability also minimize the value of your company.

Audited statements are the best financial statements. They are easily verified and will almost always produce a higher price and less onerous "representations & warranties."

To determine the fair market value of your company, a valuation report should be prepared. This will eliminate guesswork and the painful trial and error method of pricing. Regardless of how good you are at operating your company, you may not know its fair market value. You may have a good idea of the current value of your plant and equipment cost, but these tangible assets are likely to comprise just a fraction of your company's total worth.

Additionally, you should engage a professional intermediary to prepare an offering memorandum for you. This document is extremely important because, if it is poorly done, interested buyers lack the information necessary to properly evaluate the company. A buyer's preliminary interest can turn on the inclusion or omission of a single fact. The following facts would be addressed in this document:

• History of the company.
• Description of how the company operates.
• Description of the facilities.
• Discussion of suppliers.
• Review of marketing practices.
• Profile of customers/customer base.
• Description of the competition.
• Review of personnel, including an organizational chart, description of job responsibilities, rates of pay and willingness of key employees to stay on after the sale.
• Identification of the owners.
• Explanation of insurance coverages.
• Discussion of any pending legal matters or contingent liabilities.
• Compendium of three to five years' financial statements.