It’s a wrap for The PPAI Expo 2017. Another fabulous week of exhibits, networking and industry education is in the books. To celebrate the success of this year’s Expo, Promotional Consultant Today shares an encore performance: an article from Jamie Watson, MAS, CPA, who presented “A Salesperson’s Guide To Understanding Financial Statements” at last week’s show. Read today and tomorrow’s issue of PCT to learn Jamie’s do’s and don’ts of selling a company, and how to guide your company to a successful closing.

DO know your company’s value. This doesn’t mean that you should assume your company will sell at the same multiple as your friend’s company, and it doesn’t mean you should Google “company value” and use an online formula to try to figure out what your company might be worth. It does mean you should gather up your information and find someone who understands your industry to place a value on your company. In fact, don’t wait until you are ready to sell to go through this process. Your company is quite possibly the most valuable asset you own and taking the time to understand and maximize its value will only benefit you—especially if the long-term plan is to sell your company.

DON’T tell everyone you are thinking of selling your company. If word gets out that you are thinking of selling your company it can be bad for business. Keep this very confidential matter private. If you have a trusted group of advisors, then it is okay to share your plan and gather feedback from that group of people. Just be sure those advisors understand and value confidentiality as much as you do. Further to this point, don’t tell your employees. This is one of the most common mistakes business owners make. They think they have an obligation to tell their employees if the company is for sale but they are doing their employees a disservice. Knowing the company is for sale is meaningless unless the employees can do something productive with that information. The truth is, it just causes worry. If employees know the company is for sale they can get anxious and sometimes even leave their jobs. It may take years for the company to sell and no one knows what the buyer’s intentions will be with employees. Do yourself and your employees a favor and keep it quiet until the purchase documents are finalized.

DO prepare yourself for candid financial questions from buyers. If sales have decreased over the past few years be prepared to explain why. If your margins have dropped a few points make sure you understand whether the decrease is due to pricing or cost. The truth is the only reason a buyer is looking at your company is because it might be a good financial investment. Most buyers are working on a 1 + 1 = 3 formula. Your financial statements tell buyers a story. Be sure it’s a story you know well, and have the data to back it up. Most buyers will expect a full set of financial statements including a balance sheet and income statement for three years. It is also helpful to have interim statements or at least interim sales numbers for buyers to consider. If you don’t have this information available, hire an outside accountant to help you prepare it. Many owners run personal expenses through the company. Be sure to have these carefully documented so you can show buyers the true earnings of your company. There is no substitute for giving buyers a solid financial picture of your company and it is best to get yourself in the habit of keeping accurate monthly financials long before it is time to sell. If buyers see a well-run company with a knowledgeable owner, they will have more confidence and a higher inclination to purchase it.

DON’T assume your real estate will be part of the deal. Whether you own or lease a building it is best to be flexible with your facility when the time comes to sell the company. Buyers may or may not need a building but the best way to maximize the buyer pool is to have the ability but not the need to include it in the purchase. If you purchased a building, you have entered into the real estate business and that investment should stand on its own, which means you should be able to sell or lease it outside the company.

If you lease your building you should not sign long-term leases, especially as you get closer to the time when you expect to sell the company. Many owners take pride in their beautiful facilities but the truth for buyers is they need to find ways to decrease overhead, and consolidating operations is the best way to do that. Two rent or mortgage checks dramatically reduces the return on investment, which reduces the amount buyers are willing to pay for your business.

Want to know more tips for putting your company on the market? Read PCT again tomorrow.

Source: Jamie Watson, MAS, CPA, is a financial analyst with Certified Marketing Consultants, Ltd., a PPAI business services member. She has been involved in various aspects of finance and accounting for more than 12 years and has provided consulting services for both supplier and distributor companies for more than seven years. Watson graduated magna cum laude with a bachelor of business administration from Stetson University and earned her masters of accountancy from Manchester College. She qualified as a CPA in the state of Indiana where she worked for the regional accounting firm of Alerding & Co., LLC before joining the promotional products industry.