With a few exceptions, most business owners yearn for the day they are able to hand off their extremely successful enterprise to a successor. This often comes in the form of a sale or M&A, for which they hope to receive a handsome sum that allows them to enter the bliss of retirement. The truth is that it is never too early to begin preparing your business for its sale. This blog will explore some actions you can take to have a successful transaction.
- Optimize your insurance coverage. You know about the types of business insurance you are required to carry – workers’ compensation and unemployment insurance, to name a couple. However, we strongly recommend you purchase supplemental insurance so your company isn’t vulnerable in the case of a lawsuit or other loss that would otherwise be covered. Professional liability insurance is a good idea if you hold a professional license. Having the right insurance coverage benefits you and the buyer of your business.
- Do not commingle company and personal assets. This is a mistake that so many entrepreneurs make when their business begins making money. Instead of using company money to pay for those random expenses for your business, they make a “one-time” exception and use their personal credit card. Before long, the personal and business accounts are no longer separate entities. This is referred to as commingling and can open up business owners to personal liability for business debts – even for members of LLCs. Commingling also muddles your company’s accounting measures, which is not an attractive feature for prospective buyers.
- Make sure your company’s taxes and essential documents are up-to-date. The amount of information you have to produce when selling your business is quite significant. You must show prospective buyers your balance sheets, cash flow statements, tax returns going back several years, supplier contracts, employment agreements, and much more. You might want to furnish copies of other documents to further justify your asking price.
- Establish a diversified and recurring revenue base. This is more of a “nice-to-have” rather than “need-to-have” when it comes to preparing to sell your business. When examining your company’s cash flow, prospective buyers are interested in seeing revenue that comes from many sources. The danger of having a significant chunk of your revenue coming from one source is that, if you lose that client, your cash flow is severely affected. The issue is compounded if your revenue sources are difficult to replicate.
The sale of your company is an important event to have the help of an experienced business attorney, but the benefits of having one can be realized before you even form your company. Our firm can be there for you and your business no matter what stage you are in. Give us a call today at 410-296-6485 to see how we can provide value.