Make sure you probe before they do to achieve a future successful company sale
When the day arrives that you want to sell your business, any acquirer showing interest is going to take out a microscope and look into the depths of your current and historical financials. They will probe into great detail to analyze your company financial performance, looking back 3, even up to 5 years in assessing whether they want to acquire your business.
Although this isn’t news to most company owners, what surprisingly is news is the need to better understand your financials prior to exiting than the acquirer will come to know them during due diligence. Acquirers will look for trends, they will do analysis on key financial ratios, they will compare year over year actuals in each line item of your P&L and balance sheet all for the purpose of trying understand where you make money, where you have money and where there is risk in your business.
Years prior to attempting to sell your company to a third party, it’s critical that your team look at the trends and calculate the ratios and compare actuals to prior years so that you benefit from the learnings that will arise to help you in building your business but also to ultimately be prepared to present your business to a third party and avoid having them identify things about your business that you weren’t aware of. Here are a few basic data points you should know about your business today:
- What is the trailing 36 to even 60 month trend of Revenue, Gross Margin, SG&A Expense and EBITDA?
- What is the gross margin trend for each SKU or service your company offers?
- What is the gross margin trend for market segments you serve, even for customers?
- What is the trend of key ratios in analyzing your balance sheet?
- What does your financial data convey about where your company makes its money, perhaps loses money or is breakeven?
- How does headcount and associated labor cost correlate to your revenue growth?
Certainly could go on further with such questions but you get the idea. These questions are not ones you want an acquirer asking and you either have to research the answers at that time or the acquirer conveys their disappointing valuation for your business as a result of what they are seeing in your financial statements. Work with your financial manager, controller, CFO or CPA today and start conducting an ongoing and regular deep financial probe of your business. Doing so today will help you greatly at time of exit and could lead to the acquirer offering you the value for your business that will make you euphoric at time of sale.
