Understandably, the financials of your business play a large part of your exit plan and of the overall sale process. From working out your add-backs, and adjusted profits to calculating your sale price and right through to due diligence it is essential to have well-prepared clean financials.
As a foundational starting point for your exit plan, it is a good idea to conduct an appraisal of your business, more details here
An accurate appraisal will give you a good starting point as to what your business might sell for in the current market conditions.
In order to work out the value of the business, it is important to calculate the addbacks or adjusted net profit. More details about this can be found here
The appraisal process forces you to dig into your finances in detail, this is a big help throughout your sale. In the early stages, this will help you to price the business correctly and answer buyer questions quickly and confidently.
Once you get to the offer stage the work that you have done in reviewing the financials for the appraisal will help you defend the value of the business.
At this stage, the buyer is actively looking for ways to lower the offer or the value of the business. If your numbers are not clean and correct a savvy buyer will use this to try and drive down the value, taking time to make sure they are 100% right will prevent this (or at least minimise the chance) from happening
If you know your numbers inside out, you can stand your ground on price and shut down any suggestion of a price reduction based on the financials. Many buyers are suspicious of the figures provided, this comes from many private sellers not appraising the business properly and some brokers displaying inflated numbers.
If you get pushback or the feeling that you are not being trusted just know that if you follow this process properly you will be in the minority.
A useful way to look at the sale process is to focus on minimising the risk in the mind of the buyer. The basic rule of thumb is that the higher the perceived risk the lower the offer/price.
As many people focus heavily on the financials of the business spending time to get this all in order before you go to market should be non-negotiable. Even if you are not desperate to sell now you will find that your mindset will change once you list the business, with this in mind it is important that you do all you can to ensure a quick and smooth transaction.
The next article discusses the momentum of your sale, being fully prepared to list, field inquiries and negotiate will help you to keep that momentum up.
