As a founder of a private company, you may well be looking forward to a sale in the future. However, preparing your company for sale is a process, not an event — and one that requires careful preparation.
When is the best time to begin preparing? The right answer is always “right now.” It’s too late and not effective to wait until shortly before putting it on the market.
Here are the main rules you need to follow:
- Every purchaser (or investor on a majority recapitalization) will require approximately three years of audited financial statements. Although it is less expensive to have compiled or reviewed financial statements, it is far more efficient and valuable to start right. In other words, start with audited financial statements when your business is smaller and, frankly, easier to audit.
- Each sale transaction will require not only audited financials, but also a full set of appropriate corporate, or organizational, books and records. If the company is run as though its offices were in your kitchen, then that’s the way the books and records will look. If the books and records are proper, appropriate and complete, reflecting all material decisions made and contracts available, the company will present itself to an ultimate buyer, or significant investor, in the way the buyer, or significant investor, wants it to be presented.
- Many companies wait too long to get a sense of the value of their company. Obtaining a professional valuation of your company as it starts to grow and scale is not simply a way to get a number. Rather, the components of the valuation are a road map to the direction in which you should grow your company and, therefore, maximize the exit price.
- Once you see a valuation of your company, it should also demonstrate the core competency of the company, which is effectively what will be sold. Review your balance sheet for assets that are superfluous and will not be valued. Also, review your business strategy for detours that should not be taken.
- When you do finally achieve a sale, the company needs to be able to demonstrate it can stand on its own. Most sales will require the founder and key executive to dedicate a certain amount of time for a period of months, or longer, after the sale. However, buyers also will value a second in command who can easily be a first in command and replace the founder. That process needs to start sooner rather than later because of the need for customer and industry knowledge.
In short, preparing your company for a sale comes down to thinking about the ultimate exit strategy years in advance. That means running the company as though it were going to be placed on the market, with appropriate books, records and financials, next month. Do that, and you’ll always be ready.