Whether you’re deciding to sell your business soon, or revisit the idea down the road, completing a thorough sweep can be beneficial in order to get the most for your business. By addressing operational and financial issues that might not have been a priority, it could save time and effort during the sales process in the future.
Review Your Financials
Many businesses use software to run their monthly financials. These financials may not be reconciled on a monthly basis which means you’re often correcting entries throughout the year.
Buyers need to rely on the numbers presented, so make sure everything is accurate and take the extra measures to correct errors so there are no surprises during the due diligence period. Many companies have placeholder or oddball accounts (“see accountant” or “undeposited funds”). These accounts need to be reviewed and cleared before presenting your financials to potential buyers.
Minimize Your Working Capital
Working capital is always a negotiating point when selling your business. A small business may be sold with no working capital, but for a lower middle market business (those with values greater than $5M), buyers expect you to sell the business with enough working capital to operate.
Look at your aged accounts receivable and collect on older balances or write them off. Send out invoices in a timely manner and work with customers (as appropriate) to bring those payments in faster.
Additionally, it wouldn’t hurt to review accounts payable as well. Are you paying bills faster than you need to? It’s not uncommon to see long-standing business owners in a comfortable cash position get complacent—paying bills quickly and collecting slowly.
Consolidate Your Inventory
We see many businesses operating with excess inventory. When demand is strong and credit is inexpensive, these businesses use that credit to buy inventory. It makes sense at the time—the more inventory you have, the more flexibility you have with production. But if you’re planning ahead of time, consider down-sizing your inventory. Too much inventory inflates your working capital.
Address Legal Issues
Check for outstanding judgements or legal issues that have not been resolved or taken off county records. Your attorney can help perform a search and satisfy the outstanding issues so they don’t slow down your business transaction.
This also includes any employee issues that may exist. Do your best to resolve any pending suit, settlements, or workers comp matters.
Brush Up Your Appearance
Is your signage in good shape? Are the shop and yard clean? Are you portraying a professional appearance with your buildings, vehicles, and equipment? Disorganization can chase potential buyers away if the business seems like an expensive work-in-progress.
Aging assets can also be a problem if they’re critical to the business. If a potential buyer thinks they will need to replace essential vehicles or equipment after closing, then this will definitely be reflected in their offer to purchase.
But don’t invest too much in appearance either. You don’t need to run your business as if you’re not selling it, but making major investments right before you sell is usually not a smart move, as in most cases, you won’t recoup your money back out of your investment.
This article was published in partnership with Cornerstone International Alliance, which originally published the article here in November of 2022.
