Your December Checklist for a 2015 Business Sale

/in , /by Don Ross
Thinking of selling in 2015? Here are ten actions you can take this month to achieve a higher price in the New Year. 
  1. Finish 2014 strong.  Buyers and their lenders will want to see your last full fiscal year profits on an uptick. Ship and invoice everything you should this month. Resist artificially pushing income into next year to reduce your tax bill.  Don’t go nuts prepaying expenses like monthly service contracts, retainers or rent.  Review the functional health of fixed assets.  They should be in good working order – after all you’re still in business – but refrain from replacing good with new this December.
  2. Sell off non performing assets. Assets that aren’t being used productively in a business reduce its return on assets. And, it can be hard to convince buyers that such assets aren’t necessary. If they aren’t necessary, dispose of them now and get them off of your balance sheet. Also, you’ll generate extra cash now that you probably wouldn’t get in a sale of the business.
  3. Assess inventory levels.  If your inventory turns are below industry norms, convert excess or slow moving inventory to cash. Write off any dead inventory that may be lingering on the books.  Why? Simply put, buyers buy cash flow, not inventory.  A one-time inventory write off is relatively easy to explain, and you won’t get paid for it in a sale. Also, Now is the time to take a physical inventory count (rather than estimate), and adjust your books accordingly.
  4. Have your CPA review the financials.  For those of you who haven’t prioritized accounting in the past, now’s the time! Are year-end CPA-provided expenses such as depreciation reflected in the income statement?  Are all “suspense” accounts eliminated and properly attributed to the right accounts?  Are divestitures of fixed assets removed from the balance sheet?  Are the financials verifiable against federal tax returns? Are capital leases correctly accounted for? Does the balance sheet make sense? Will your accounting make sense to a buyer’s accountant in due diligence?  Why is this important? As business brokers, over and over we see good buyers and lenders turned off by shoddy accounting.
  5. Pay as much as you can in taxes this year.  No, this is not a typo! Why? “Lifestyle entrepreneurs” who hide profits and pull everything they can out of their business often find it difficult to sell that business for a good price.  Entrepreneurs who pay the tax can usually sell the business at a multiple of earnings that well exceeds the additional taxes they shelled out. Explain to your CPA that you are selling in 2015; they should understand.
  6. Prepare the tax returns early.  Close the books and turn them over to your CPA as soon as possible after year end. Why? Business acquisition lenders need to see tax returns, and we can get an early jump on having your business preapproved for financing if the 2014 tax return is prepared.
  7. “Tend the Herd”.  If your business has customers under contract, find ways to extend those contracts.  If your customer portfolio is limited and you have one or two major clients that comprise a large share of your business, aggressively pursue new clients for better diversification.  The same is true with vendors.  Why? This reduces risk for buyers (and you), and business value is inversely proportional to risk.
  8. Update your business plan.  Why is this important if you’re selling? Buyers prefer to see business-as-usual while a business is for sale — especially buyers who are willing to pay top dollar. Businesses with a clear and compelling growth plan sell for more money.
  9. Assemble your transition team.  Consistent success in business sales requires A) an organized process, and B) expertise that few business owners have.  Assemble a team that includes at minimum a competent business/M&A broker, wealth manager, business transaction attorney and accountant. Pay for their advice and let them collaborate. You receive more in the end when you use the best advisors from the very beginning.
  10. Plan for your future.  Beyond the business sale, there is your next adventure to ponder.  Look forward to it. Find time during December to plan for it – with your transition team, so that you can enjoy it when the time comes.
Successful entrepreneurs plan their exit and sell from a position of strength, on their terms and time frame. For more information on any of the above points, or to sell your Northern California business, contact Don Ross at 707-778-0210.