Deciding if it’s the right time to sell your business is never an easy decision to make, but is a consideration to always keep top of mind should an unexpected opportunity arise. As investment bankers, we often see business owners approached by a potential buyer. However, the business is not prepared to provide key information buyers are immediately hoping to see. In today’s uncertain economic climate, we are seeing and expect to see more unsolicited offers from buyers looking to make strategic acquisitions.

What Buyers Want to Know

To help ensure you’re prepared should you be approached, consider these key areas buyers will analyze when valuing a business interest:

• Financial information. This is a no-brainer. Buyers will want to see the financial health of your business. Be prepared to supply information such as your annual financial statements, monthly financials, non-operating expenses and one-time events. Non-operating expenses and one-time events are typically costs from activities indirectly related to your company’s day-to-day operations, such as interest payments, lawsuit settlements, write-off of assets and natural disasters, to name a few. Quality monthly financials are key to buyers because it provides them with useful decision-making information, such as earnings and expected cash flow, which can either drive or derail their decision to move forward with a transaction. Ideally, you should have at least the last 24-36 months of information prepared from the most recent month ended. We encourage you to enlist a trusted CPA provider, like those from our CPA and advisory affiliate Doeren Mayhew, to help ensure your financials are up-to-date and that you fully understand the information.
  • Also be sure to have a clear understanding of your earnings before interest, taxes, depreciation and amortization (EBITDA), which is what buyers use to measure the overall profitability of a company. Working with a mergers and acquisitions (M&A) advisor before entering the market to sale can be helpful because they will work with business owners to help “normalize” or adjust their EBITDA calculation. Typical EBITDA adjustments include owner salaries and employee bonuses, any personal expenses by owners and one-time expenses.
• Value drivers. To help increase your value, it’s important to understand how hypothetical buyers would perceive your business operations. Some key value-drivers buyers are specifically evaluating in today’s market include:
  • Experienced and capable management teams. Strong, decentralized management teams are valuable assets because it proves the business is not overly dependent on one individual. As you evaluate your management team structure, consider having agreements and incentives in place to help keep them onboard with the company post-sale.
  • Proprietary products and services. Companies with proprietary products or services always appeal to potential buyers because they provide a barrier to competition and are poised for future growth. Continually reinvest in property, the plant, equipment, and research and development related your proprietary models to build upon your competitive advantage.
  • Future growth potential. Understand ways your business could grow if you had unlimited capital and resources and demonstrate those capabilities. Create a business growth plan with an investor’s mindset and highlight how your company plans to generate revenue and build the business within the next two to five years.
• Overall operations. Today’s buyers are bringing a more integrated approach to valuing a business. Technology and cybersecurity measures are being more heavily weighed, so have documentation ready to highlight how the company is protected both financially and operationally, how often these infrastructures are evaluated and associated costs. With a turbulent job market, buyers will want to understand employee retention efforts, if roles and responsibilities are scalable, and details related to benefits and compensation. On the compliance side, be sure your business can support its regulatory and tax compliance efforts. As you work with your business CPA, we encourage you to meet with them regularly as tax returns are filed or audit engagements are completed to understand potential risks and capitalize on opportunities.

Handling Unsolicited Offers

An unsolicited offer is an offer you receive when your business is not actively on the market and is common in the world of M&A. If a buyer approaches you with an offer, we strongly encourage you to proceed with caution and work with an M&A advisor to help you determine whether the offer is serious and if selling now is in your best interest. The most important thing to be aware of is to never, ever sign a letter of intent before discussing it with your trusted business advisors.

Here to Help

If you are considering selling your business soon, rely on Doeren Mayhew Capital Advisors’ investment bankers to assist in preparing it for sale to maximize value. For more information, contact us today.