Management Contracts: The value of a business may largely depend on smart decisions made by experienced managers. To keep valuable managers in place, and an owner can provide financial incentives to motivate managers to stay after a company sale.
Audited Financial Statements: An owner should have an independent CPA firm perform an audit on the financial statements each year and issue an audit opinion. A potential buyer will have more confidence in audited financials statements, and this can speed up the due diligence process in the event of a sale.
These steps can help an owner plan for a business succession and speed up the process of a company sale. Having a succession plan in place also increases the value of the business.
How Much Cash Is Needed After Exit?
No owner wants to sell a business unless the price is reasonable. If your client is considering a business sale, help them start with the end result in mind. Consider their current financial status, including total assets invested. How much would a business sale need to generate for an owner to invest the proceeds and retire?
Say, for example, that Mary has $1,000,000 in invested assets. Her financial advisor determines that she would need to invest another $3,000,000 to generate her ideal retirement income. If Mary’s interest in the business can’t be sold for at least $3,000,000, she may decide against the sale and manage the business herself for several more years.
An Informed Seller
Selling a business can be an emotionally draining process, because the typical owner has invested years of work and sacrifice. To maximize the proceeds received for a sale, an owner must do his or her homework. Financial planners are in a unique position to help a business owner become fully informed. Use this discussion to help your clients prepare themselves for a possible business sale.
Dan Doran, CVA, is the founder and principal of Quantive Business Valuations, a certified valuation practice serving privately held businesses nationwide. He consults on hundreds of valuations each year, ranging from cases of divorce litigation or SBA 7(a) lending requirements to buy-sell agreements or purchase and sale proceedings.