Preparing to sell a business and increase your business value has many moving parts, from getting financials in order for prospective buyers to determining the structure of the deal and identifying potential buyers.

Some of these strategies take time, so ideally, business owners will start the exit planning process at least five to 10 years in advance.

Summarized below are 10 steps to increasing the value of your business before selling or transitioning ownership.

Conduct an overall business assessment involving:

  1. Obtain a benchmark business valuation to determine the company’s estimated value at the beginning of the exit planning process. You will obtain another valuation at the end of the process to determine a possible sales price and demonstrate the value you have added by making improvements.
  2. Bring your monthly and quarterly financial reporting up to date and check accuracy. You can only understand your company’s level of profitability with a clean set of books
  3. If you don’t have an annual audited financial statement, consider having the financial statements audited two to three years out of the expected sale. Many companies have reviewed financial statements, but potential buyers and financing partners prefer audited financial statements for added assurance and comfort
  4. Clean up the balance sheet. Look at every line item and remove old fixed assets that may have been disposed of a long time ago. Make sure inventory is accurate to get rid of old obsolete items.  If you have property and equipment that has significant unrealized value consider having equipment and/or inventory appraisals.
  5. Do some forecasting and budgeting. Revenue projections should be completed three to five years out. When doing this, document strategies will yield the forecasted results. This helps a prospective buyer establish realistic expectations of revenue.
  6. Perform an overall compliance review. Is the company in compliance with all applicable government regulations, tax laws (federal, state, and local), workplace and labor issues, such as safety regulations and worker classification?
  7. Review shareholder and buy-sell agreements, as well as life insurance funding.
  8. If your business sells in multiple states, obtain a state tax nexus study so the prospective buyer fully understands potential tax liabilities.
  9. Discuss the sale of your business with your tax advisor to determine the tax ramifications of the sale. A full tax evaluation before a sale can help determine options for deal structure.
  10. Decide whether you will offer an asset sale or a stock sale and learn the tax ramifications of each type. A stock sale allows for ease of transfer, but many buyers prefer an asset sale. Make sure your attorney and accountant discuss the tax implications of the deal structure and are on the same page as to how things will be done.

To learn more about increasing the value of your business, contact our business valuation experts today.

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