Preparation to Sell


What are Your Goals?

Have you defined at what point existing makes the most sense. Is it a certain point in time, is it the achievement of a business objective or a personal financial objective. In any event, definition of the exit point facilitates setting a time line and drives the activity within the business that needs to occur to achieve your specific business and perhaps your personal financial objective.

A wise person once said “Always be prepared to sell your business, but operate it with the mindset that it will be yours forever”. Obviously continuous improvement is the best way to maximize business value both in what it returns the owners both short and long as well as at the point when the business is sold.

Assuming Your Defined Your Exit as a Sale of the Business There Many Things to Consider:

What’s the curb appeal of your business?
What are the impressions one has when they first walk into your office? Does it convey and image of professionalism and high standards for quality in appearance. What does your fleet look like out in the neighborhoods? What state of repair are the vehicles in? What does the work environment look like and what message does that send to someone that is trying to draw conclusions about the non-financial attributes of your company? Does it look like a place where people are happy in their jobs and look forward to coming to work every day? Does this indicate stability in the workforce? Does it imply that talented enthusiastic people work here? If you are running a company with the mindset that it will be yours forever and that you foster continuous improvement, the curb appeal of your business has a great deal of positive to say about your business.

Improving the financial performance of your business
EBITDA - Improving the cash flow performance of the business without compromising the ability of the business to acquire and service new customers in the future. It does not mean that the owner has to pay himself less or accept fewer owner benefits; it simply means to find ways to improve business profitability. As discussed previously a buyer will be looking to ascertain the cash flow of the business that before the owner “take-outs”. At the end of the day any endeavors that will improve the cash flow or profitability will likely result in a higher valuation.

Key Business Metrics – Targeting improvement in the key business metrics such as customer count, customer retention rates, increasing the level of recurring revenue, gross margin improvement, revenue per customer, labor efficiency, etc. and making the improving trends demonstrable will result in higher business valuation.

Highlight unique competence – Featuring anything about your culture, retention of your work force, selling, customer retention or any intangible attribute that creates noteworthy results, particularly to strategic buyer in that “your business may become their business”.

Understand which of your competitors would make the best steward for your business in the future? Targeting a purchaser means understanding your competition. Which one of your competitors or other service companies do you admire? What does their business model look like? What is their go to business philosophy? Are they service or production oriented? How do they sell? How do they price? How are the programs set up? What do homeowners think of their service? Does your company emulate this company? Let’s assume that you respect this competitor then it is important to understand the best practices and can you emulate those best practices and perhaps make them better in your company. To the extent that is true, it is far easier to justify a premium offer to a company that you deem to have cultural and operational symmetry with.

How is your company organized?
Is it a C corp, an S corp, or an LLC. If you are not certain I advise you to check with your tax person or look at your most recent corporate tax return. If you are a C Corp I would strongly advise you to consult with a tax person or the attorney you trust (perhaps not the one that set your corporation originally as they may not give). Ask them if there is a compelling reason to remain a C Corp and if the conclusion is that there is not, you should seriously consider changing the corporate form of your business as soon as practicable.

The primary reason for changing the corporate form is the tax consequence of a transaction resulting in the sale of the business.

Most acquirers seek to purchase only the assets of the business, thus a transaction structured as an Asset Purchase. This is particularly true of public companies. An Asset Purchase is a simpler, less costly transaction to execute, results in far less risk being assumed buy the acquirer and is more tax advantageous for the buyer. The economic consequences are enormous to the buyer.

If you are organized as a C Corp conducting a sale of the business through an Asset Purchase could mean that the majority of the proceeds would be paid out in taxes! The reason is that there are two levels of taxation that occur, once as a gain within the company once the assets are sold and then a level of taxation at the shareholder level when the cash is distributed. The simple remedy would be to have an acquirer purchase the stock of the company, but as mentioned in the previous paragraph given the economic consequences to the buyer are substantial. The extent of the consequences will more often than not result in a buyer being unwilling to transact through a purchase of the seller’s stock. Plus a buyer is not going to pay a seller more for the assets simply because the seller has tax issues. (There are alternatives for a C-Corp seller that require a more complex discussion)

If you are organized as an S Corp the tax consequence is that much of the transaction is treated as a personal capital gain the net of which is many times less tax paid as a result selling the assets of the company.

Eliminate deal breakers
  • Corporate structure (discussed above)
  • Family in the operation (those that do not create value)
  • Taking inflexible positions on assets that may not be important to a buyer
  • Partners and complexity
  • Franchise relationship
  • Attorneys and accountants unless they are focused on working strictly on your behalf and in concert with your goals.
  • Family issues; ex-spouse
  • Insurance claims, litigation, liens


Transparency of Information
Make certain that operational reports are up to date and there is clarity to anyone that might review them. Make certain that financial results are accurate and transparent to those that review them and that you understand them and more importantly be able to discuss them. You might not need to present and discuss with a buyer but you may need to talk to a banker about financing a building, fleet expansion, computer and software purchase, or an operating line of credit to help your business expand.