We have listed the steps we recommend:
- Cash management – to be eligible for the capital gain, the business must have less than 50% of its value in non-performing assets (cash, advances, etc.) during the two years preceding a sale. We have encountered a few cash-rich companies that lost the exemption by not managing that aspect. These funds or advances must therefore be removed from the balance sheet. Speak to your tax specialist – accountant to find out more about this. This step is the easiest as well as the quickest and can earn you a good difference in the net amount of sale proceeds in “your pocket” when closing the sale.
- Your share structure – while you’re at it, go over this with your professionals. Depending on the value of your business and your personal situation, certain strategies can be considered – management companies, trusts, different classes of shares. Carefully assess the cost, possible gains, and profitability as well as the consequences of the options. Feel free to ask questions and think proactively with your tax professional.
- Manage your balance sheet – excess assets are harder to monetize in trades. If you look at your company from the outside – what assets can you have? Use these funds to reduce any debt and solidify your balance sheet position.
- Is the level of inventory justified? Some inventory is not accurate, either because it is spent, and it is undervalued or dormant parts/lines that could be liquidated (a buyer will not give anything for it). Inventory that is not “rotating” is often written off upon sale.
- Do you have equipment that is incorrectly accounted for? Are you able to identify the major maintenance expenses that increase the value of the equipment, but are at the expense?
- Manage your income and expenses – It’s time to properly recognize income, work in progress and accrued expenses as they progress. For expenses, purify what belongs to the company.
- In terms of real estate, values have increased so much – if you own your building – are you paying yourself normal rent (this will affect the profitability of operations)?
- At the shareholder compensation level, make sure it’s clear and easy to trace – no matter how much you pay yourself, a buyer will normalize your compensation to market standards to gauge expenses.
- The most important thing in preparing for a sale, however, is human resources. This point is all too often overlooked. If you want to maximize the value of your business, it should be as less dependent on you as possible. The strength of a company is often the person in charge, however if we are faced with a company that depends on its founder, the value of the goodwill is greatly diminished.
- At the customer level – is it attached to the individual or to the company – who manages the relationship on a day-to-day and strategic level?
- For operations – is the team autonomous or do the solutions always come from the contractor?