When the decision is made to sell a business, managers, executives, and entrepreneurs have a bevy of considerations to make. There are financial, operational, sales and other issues that may need adjustment and optimization. For this reason, it is essential to start the transaction planning as early as possible. This will allow for the most amount of time to make important changes. To help clients, prospects, and others, Tanner Co has provided a list of the most frequently asked questions about transaction preparation below.
I’m thinking about selling my business in the next few years. What can I do now to maximize value for when I’m ready to sell?
There are several things you can do now to ensure you get the maximum value for your business when it’s time to sell. First, you should focus on the core drivers that impact your business – measures that will increase your revenue and steps that will drive stronger profits. Potential buyers will want to see a track record of consistent growth, so it’s essential to optimize your operations and focus on improving profitability.
Taking steps to minimize your reliance on any one customer or supplier is very important. Diversifying your customer and supplier base can help reduce risk and make your business more attractive to potential buyers. Additionally, make sure your financial statements are accurate and up to date. Clean financials will help instill confidence in a buyer. It is important to have reliable monthly financial statements that are on a US GAAP basis and not just annual financial statements.
What things can I do for tax purposes to be best prepared when selling and dealing with tax matters?
It’s essential to work with a tax expert to ensure that your business is structured in the most tax-efficient way possible. This may involve things like choosing the right entity type, making sure you’re taking advantage of all available deductions and credits, and being aware of any tax implications of the sale.
Understand the tax implications of different transaction structures. Some tax advantages, like Internal Revenue Code section 1202 – the qualified small business stock gain exclusion, require elections to be made and forms to be filed in advance of a transaction in addition to holding the stock under that election for at least five years.
What things do you look for to identify the right buyer?
The right buyer for your business will depend on your specific objectives; however, there are several factors that we typically look for when identifying potential buyers. These can include the buyer’s financial strength and ability to finance the transaction, their experience in your industry or a related industry, and their strategic goals and objectives.
We also consider the buyer’s cultural fit with your company and their willingness to work with you to achieve a successful outcome.
What is a sell-side quality of earnings, and what value does it provide?
A sell-side quality of earnings report, or QofE, is an analysis of your company’s financial statements and underlying business operations. It helps to identify areas of concern or risk that a potential buyer might uncover during due diligence.
QofE analysis can assist you in identifying and proactively addressing any issues and making your business more attractive to buyers. It also helps ensure that your financial statements are accurate and up to date. Performing sell-side due diligence is proven to reduce close time, increase buyer confidence and maximize value.
What typically derails or delays a transaction?
There are several factors that can derail or delay a transaction. These can include issues related to financing, such as the buyer’s inability to secure financing for the transaction. Due diligence issues can also arise, such as the discovery of undisclosed liabilities, sales and use tax errors or inaccuracies in financial statements.
Additionally, disagreements between the buyer and seller on key terms of the deal, such as purchase price or post-closing arrangements, can also cause delays or derail the transaction.
Is there a right time to sell?
You cannot control the market or economy. Therefore, focus on the things you can control as you prepare your business for a transaction
If you have questions about the information outlined above or need assistance with transaction advisory, Tanner Co can help. For additional information click here to contact us. We look forward to speaking with you soon.