Trusted Advice On Preparing A Business For Sale
Selling A Business - In This Market Article
In this Market, Accurate Financial Information Is Essential
By Bill Quish, Mergers and Acquisitions Specialist and Certified Exit Planning Advisor
Even though these are challenging economic times, the positive news is there continues to be good demand for Sellers with fairly-valued companies. The bad news is, it is more difficult to get a transaction financed due to the current credit (lending) environment.
That being said, it is more important than ever to have accurate historical and pro forma financial information should you be contemplating the sale of your business. This information is heavily relied on by buyers, investors, banks and junior capital sources. Failure to be able to provide this essential information can result in a lower valuation for your company, less cash received at closing or even cause a strong buyer to walk away from the table.
For a period of at least two fiscal years prior to your desired exit date, business owners should engage a reputable, certified public accounting firm to generate audited financial statements. While some will say reviewed financial statements are sufficient, I frequently examine reviewed financial statements that do not accurately reflect the true financial condition of a company. In fact, several years ago I represented a sell-side
client who decided to forgo audited financial statements because of the incremental cost. During due diligence, the buyer uncovered discrepancies that would have been picked-up during an audit and ultimately resolved. The buyer and its financing source lost faith in the credibility of the seller’s numbers and terminated discussions.
While buyers purchase a business for its future cash flow stream, they typically base the majority of the amount they are willing to pay on recast historical earnings before interest, depreciation, taxes and amortization. Sellers should try and sell the future. That being said, Sellers should provide buyers and their financing sources with pro forma financial projections that accurately reflect anticipated future business operations for a period of at least two years. Forecast assumptions should preferably be tied to a strategic plan. Even better would be the ability to show buyers and their financing sources how past results have compared to your past budgets or forecasts. Such projections can often help the Seller substantiate an asking price for the business.
Sellers with companies that have a strong management team, a diverse customer base and are above average industry performers always receive higher valuations for their Company. These key value points should be highlighted in the “Deal Book” presented to potential buyers.
In closing, the buyer, investor and lender must have absolute faith that the financial information presented by the Seller is materially accurate. Accurate historical financial statements and supportable financial projections reduce risk in the eyes of these entities. Lower risk can result in a higher price for your Company and improve the odds that the transactions will receive financing in these difficult times.
Bill Quish is a Mergers and Acquisition Specialist and Certified Exit Planning Advisor (CEPA). He is a Senior Managing Director at Lyons Solutions, LLC. He can be reached at (860) 658-1845 or at bill@mergermaven.com.
Copyright 2010 By Bill Quish. All Rights Reserved.
