Preparing Your Company for Sale

Preparing a Company for Sale

Before hitting the launch button, go through the checklist

Preparing a company for sale – the M&A processexit planning – entails a fairly extensive list of things that need to be done and considered. The process should start several years in advance of the sale process.

Among the many issues are:

– Succession planning, talent acquisition, training and talent retention

– Process review

– Diversification of risk

You will appreciate that most companies are purchased by private equity firms. To receive the highest possible price for your company, you need to be viewed as a platform company instead of an add-on. To be an attractive platform company, your company needs to have reached a stage where it sustains itself. It has Human Capital, Structural Capital and Relational Capital.

Put another way, it has good people, depth on the bench, and a process for recruiting, training and retaining them.  It has internal processes that reflect an in depth understanding of the business in all respects including a strategy and a vision that extends out 5-10 years.  And it has good or great customer and vendor relationships.  In the absence of this self-sustainability, the buyer is really just buying your customer relationships, or technology, or some other part of the whole.

You – the current owner/operator – need to be expendable. Who is your replacement? Potential buyers want to know the company will survive once you leave. That requires talent acquisition, training, talent retention and succession planning. One of the challenges entrepreneurs have is letting go of the reins and bringing in someone that is their equal (or more than their equal). You need to have a real management team in place, with cross training of all your staff. There should be two people or more that know every job.

Preparing a company for sale should begin about a year or two year ahead of marketing the company for sale. Start with a review of all internal processes needs to be conducted. This is part of the due diligence a buyer will go through. They prospective buyers will ask themselves “Is the company as efficient and effective as it can possibly be using best practices and current technology?. If the company were being designed from the ground up today, is this the way you would put it together?” If not, look into the steps that can be taken in the next year or two and reflected in the financial statements the following year. Have you integrated current technology into your business processes? Software that increases efficiency is generally a good investment, even in the short-run. Related to this is where technology is headed, and whether the company has reviewed its strategic marketing plan to reflect the changing competitive landscape.

Diversification of your customer base is increasingly important given the rate of change in technology. Sales concentrations impair sales price and are an impediment to raising capital, as lenders are concerned about both uncollectable accounts receivable and unabsorbed overhead. One of the things that’s hard to predict is how changing technology will affect your customers. If you were dependent on Borders Book, or currently, Best Buy, anyone would rightfully be concerned about the outlook for your company. The best thing you can do is diversify your customer base, and watch the stock price of your customers. If they are public, watch their public competitors’ stock prices, and make this monitoring an integral part of your CFO’s job. There should be a natural tension between your CFO and Sales. If there isn’t, you don’t have balance.

These are some of the first things to think about in the process of preparing a company for sale.  Exit planning is a job on top of your job, and we assume you are already fully employed.  Talking to us when you being the process achieves two related goals.  First, completing your exit plan.  Second, we increase our knowledge of the company to a level where we can market it with greatest effectiveness.   To learn more, contact us.

by Charles Smith

Mr. Smith is the founder of Pegasus Intellectual Capital Solutions, a boutique investment bank specializing in mergers and acquisitions, Raising Capital and restructuring and workouts. The firm is an innovator in the use of Intellectual Capital Audit for pre-closing due diligence and in turnarounds. Charles can be reached at