1. Valuation & Understanding Your Financials
Selling your company will be one of the biggest business deals that any business owner will make. The selling process has become very specialized and will similarly require many specialists to assist in the process. It will also be incumbent on the seller to understand the processes involved first and then assemble the key team to assist to ensure a maximum return in the sale.
For any business owner that is getting ready to start the selling process becoming familiar with the universal methods of business valuation is a must.
The most used method of valuation is the Income Method of Valuation. Simply stated, this method is using a multiple of owner’s discretionary earnings to determine a sales price. It is a safe bet that this is how your business will be valuated to determine a sales price.
It is important to understand the basic terminology used in valuation such as, EBITDA, Adjusted EBITDA, owner’s cash flow, and owner’s discretionary cash flow. Most of these terms mean the same thing, but it is important for the owner to understand how the Income Approach is determined, and the terminology listed above to stay ahead of the process.
It is also important that the business owner has an understanding of how to read his financials i.e. the last three years of tax returns, and P&L, with interpretation as to the implications to a M&A sale.
As previously mentioned, the business owner should be able to calculate his owner’s discretionary cash flow, EBITDA, and Adjusted EBITDA for each of the past three years and the present year to date. The owner should be able to explain any significant shifts in total annual sales, gross and net profits, and any shifts in expenses. In the grey area of business accounting, the owner should know where significant personal expenses, if any, are hidden in the P&L and Balance Sheets.
2. M&A Specialists: Forming the Correct Team
Even before starting the selling process it is imperative that the business owner gets his M&A support staff assembled. The practice of law has become very specialized.
As an example, you would not want your family doctor taking out your gall bladder. You would seek a physician that specializes in this procedure performing that every day. The same is with your personal / company attorney that takes care of your normal business issues. There are M&A attorneys that only do M&A sales, representing business owners on a daily basis.
These specialists are current on all techniques in valuation and with the sales process. Business sales rarely proceed in a straight line. Ask any business broker or attorney. It is imperative that the owner is represented by an M&A specialist, because it is a sure bet that a savvy buyer will.
Additionally, it is just as important to have a tax specialist on the sales team. The tax implications of sale are as important as the sales process. The tax implications / ramifications of how a deal is structured, and how the sales price is allocated. There are CPA’s that only work on business sales, and understand how to get the seller the maximum money after the sale and the IRS has their share.
Last but certainly not least, it is important to have a business broker with experience in the size deal that you will be selling. An experienced business broker can be the catalyst of the sale and will be able to make the other members of your support group do their jobs successfully.
There is no substitute for experience, and this is most important in hiring a business broker that has been in the business for many years with a ton of closed sales behind him.
In summation, selling your company in 2018 will be an involved process to undertake. Having done your homework on understanding the key elements of the process before you start will prepare you for success. Additionally, having the key players on your side before you start will insure that, in the end, you take home the maximum money.
Contact a M&A Expert Today!
Bill Whitehurst, Business Broker
Cell: (214) 563-4431
Fax: (214) 432-5498