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The Difference in a Good Sales Price and a GREAT Sales Price: Proper Planning

The Difference in a Good Sales Price and a GREAT Sales Price: Proper Planning

In order to attract the most eager acquirer for a business who will pay the highest price, you have to plan ahead.

Proper planning can:

  • Broaden the field of prospective acquirers
  • Enhance the value of the business
  • Facilitate the due diligence process
  • Maximize the potential for a successful sale

The process of packaging and positioning a business for sale is straightforward, but it requires planning, an unbiased review of the business and concise articulation of the value drivers to the business.

When should planning start?

Ideally, a business owner should start planning at least two (2) years before actively marketing the business. This early start allows time to fully implement strategies that will drive up the value and improve the marketability of the business.

The planning process should be executed from the perspective of the prospective buyer.  The two most important dimensions from the buyer’s point of view are Cash Flow and Assets.

 

Why is Cash Flow important?

The primary measure used to determine the value of a business is cash flow.

A buyer is looking for predictable, measurable, and sustainable cash flow with strong historical growth and bright prospects for future growth. Prospective acquirers will want to see financial records that accurately reflect the state of the business.  Any “one-off” ventures or “sweetheart” arrangements with vendors that will not survive the owner’s sale of the business need to be explained.

What types of Assets will be evaluated?

There are two types of assets: those presented on the balance sheet, and those that are not. Although it is very important that the assets on the balance sheet are properly reported, it is most often those “off balance sheet” assets that reflect the true value of the business. Strategic buyers often purchase a target company for its customer list, its supplier relationships, key patents, unique skills of employees or proprietary systems that may have been developed over many years.  These assets must be identified, analyzed and presented in a format that highlights their inherent value.