Increasing the Value of Your Company Before Selling

Mergers and acquisitions activity have accelerated significantly in recent years. Companies have liquidity on their balance sheets, are looking to obtain experienced staffing and technology, aging demographics, and tax reform, are all contributing factors that are driving mergers and acquisitions. It is important to strengthen your financials before deciding to sell, to get the maximum value for your company. This process should be started one to two years before selling. Here are some simple ways that you can strengthen your financial statements:

• Be diligent in collecting accounts receivables within the terms (net 30) and clean up those accounts that are past due or unexpected to be collected. Buyers will reduce their purchase price for overdue accounts and the cost of financing accounts being collected outside the terms.
• Only include saleable inventory on the financial statements. Even if the clean up of inventory is included in the current financial statements, this can be explained to buyers. But if the buyer discovers this during the due diligence period they will look to reduce the purchase price.
• Continue paying down debt and staying current on accounts payable. Try not to incur any unnecessary accounts payable or debt.
• Review the income statement for unnecessary expenses like payroll, travel and entertainment, office supplies, and other miscellaneous expenses. Reducing these expenses will increase the net income being used to calculate the value of the company.

Ensuring that you have clean financial statements keeps buyers from having doubts and questions about the purchase and can eliminate the need to renegotiate any agreements. When determining whether to purchase, buyers will typically request at least three years of financial statements and three to five years of projected/forecasted financial statements. Having audited or reviewed financial statements prepared two to three years before selling will help provide confidence to the buyers that the financial information being provided is accurate.

Selling a business can be the biggest deal in your lifetime. Proper planning will help ensure that you receive maximum value for your company.

If you have questions or would like to learn more, contact Jason Marvin at jmarvin@bgm-cpa.com.