By {{Article.AuthorName}} | {{Article.PublicationDate.slice(6, -2) | date:'EEEE, MMMM d, y'}}
The process of selling a business can take years, whether it’s through a commercial broker or by passing it on to a family member. In many instances, this is good news because it means the owner has time to boost the business’ value.

A thoughtful and well-constructed exit strategy can help maximize the value of a business, as well as benefit future management. An owner’s transition out of the business can be overwhelming and typically takes several years from planning to actually closing a deal.

The following tips address how to implement a proactive approach to improving the overall value of the business.

Determine the Company’s Preliminary Value

Placing a price tag on a business is part science and part art. Before diving into a formal business valuation process, work with a CPA to determine the firm’s “value drivers.” This will help the owner define his goals and identify how he should position the company in the future to maximize value.

Value drivers are critical elements that contribute to a business’ overall performance. These include areas such as growth, management depth, competition, human capital and financial history. Identifying value drivers is essentially a reality check about a business’ strengths and weaknesses. This might be the time to implement some operational changes that improve the company’s systems and procedures or work on customer satisfaction programs or sales goals.

Clean Up Financial Records

Now is the time to review financial statements with a CPA through the eyes of a prospective buyer. Examine financial reports and identify any undesirable areas or weaknesses that might be correctable. Areas to address may include:

  • reserving for uncollectable accounts receivables;
  • writing down old or obsolete inventory;
  • writing off capital assets that no longer exist; and
  • reserving for warranty costs and compensated absences.
Because buyers ultimately are buying the future cash flow of the business, it’s imperative to prove the reasons behind cash flow forecasts.

Attend to Unresolved IssuesIt’s best to deal with non-compliance issues, ongoing legal claims and business-related litigation, and multi-state and payroll tax issues prior to selling. Especially when passing the business on to family, dealing with these issues immediately will make the ownership transition easier. Only after these measures are taken should a business owner proceed with a formal valuation of the company. This step typically is performed two to three years before the actual sale.

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