Tuesday, February 12, 2008/
Some people like surprises; but not business buyers! When you’re selling-up, it does everyone a favour to iron out every potential curveball.
Selling out? No surprises please
If you are contemplating selling your business then the most important rule of thumb in gaining the buyer’s confidence is “no surprises”.
I know of venture capitalists running the ruler over a potential acquisition who have simply walked away when a number in the financials was found not to be accurate.
I’ve had business owners tell me that it is the potential buyer’s responsibility to do the due diligence on the business for sale.
Sure it is, but you can do plenty to help them quickly gain some level of confidence and trust in what you are selling. Then if something unexpected does pop up, at least you might be given an opportunity to explain it.
You simply must get in the potential buyer’s shoes and experience your business from their perspective. What will they see as they start to comprehend what your business does? What will they hear about your business from outside/inside? What will they feel/think about it?
Financial information. No surprises. Rather obviously, make sure your financial statements are squeaky clean – accurate (!), comprehensive and easy to understand. Where appropriate, these should be supported by comprehensive working papers neatly filed and referenced.
A simple example would be the liability for annual leave (provision for annual leave). This is typically shown as a single figure in the balance sheet. If you were buying your business, you would want to know the make-up of this provision and ensure that it covers the whole liability as per the applicable awards, agreements or contracts. If you were the buyer, which numbers would you want more information on? No surprises.
Systems and processes. No surprises. Address any glitches in your systems and processes and ensure your documentation is good. I don’t mean voluminous; I mean good – helpful, accessible, used. These systems and processes are your hidden assets (not on your balance sheet) and can add value in a sale. If you were the buyer, what would you want to see to get more comfort here? No surprises.
Key contracts and agreements. No surprises. Ensure that all of your key contracts are up to date, filed neatly and easy to access. These can also be cross-referenced to your financial statements as appropriate. Business continuity can be a very important selling point. If you were the buyer, what would you want to confirm? No surprises.
Think about your business from the buyer’s perspective. They will be risking their money, so what can you do to provide them with some comfort that all is as it seems?
Mark Robilliard and business partners Peter Frampton and Carmen Mettler started a journey to find a new way for anyone to ‘get accounting’ and use it in their job and life to create value. Accounting Comes Alive was born and now provides workshops all over the world using their unique and friendly Colour Accounting™ learning system that really does work, for everyone.
To read more Mark Robilliard blogs, click here.