The Exuberant Accountant - Scott Heintzelman

1. Does the business have a strong track record of financial performance? How confident would a buyer be that the business will maintain or grow after a sale? If your company is not currently performing at a level that would attract buyers, consider the steps you will need to take to improve operations before you hang the "for sale" sign.

Although it may be tempting to begin winding things down, the period before the sale is the time to accelerate business activities by developing new customers, beefing up advertising -- even introducing new product lines. You want to offer prospective customers a good value. (If you slow down operations, you are handing the buyer a negotiating tool -- the power to offer less money.)

To maintain healthy financials, it's important to not only eliminate unnecessary expenses, but to step up collection efforts. Buyers don't want to see a long list of past due accounts receivable. Plus, if those debts are collected after the sale, you may not see much of the proceeds.

2. What is the first impression of the business? What do customers see when they visit? The outside should be well-manicured; the lobby well-lit and inviting. Your company should also reflect an overall atmosphere of order. Keep in mind that, in this regard, selling your business is a lot like selling your house. You want a freshly painted, uncluttered appearance.

Consider your business from an outsider's point of view. What would you change? You may also want to ask a trusted associate or professional adviser to visit both your business's bricks-and-mortar location as well as your company Web site and provide you with feedback. Be sure the information on your Web site is current and don't forget to conduct a search of what is being said about your company on social media web sites and elsewhere on the Internet.

3. Do you know what the business is worth? Can you provide support to a potential buyer, for example, in the form of a third-party valuation report? A professional valuation of your business provides an objective idea of what you can expect, and will help you gauge the fairness of buyer offers. It can reveal strengths, which will help you market your business, and weaknesses, while there is time to take corrective action. It also helps you to set a realistic asking price and provides support if prospects question your price.

If buyers engage a valuation expert, be sure you have all of the appropriate information readily available to support their efforts (financial statements, customer lists etc.).

4. Can you articulate your reasons for selling? Prospective buyers will want to know why the owners are selling now. Perhaps you want to retire or move on to the next stage in your life. Maybe the operation needs a new team to take it to the next level. Whatever the reason, make sure you can articulate it since buyers naturally think: If the business is so great, why are you selling?

5. Do you have the right team in place? One important asset you're selling is the employees who work at your company. Is your team properly trained and is there a winning company culture? Examine non-compete agreements that you may have with employees from the standpoint of a prospective buyer.

6. What about the outside team? In addition to the employees, keep in mind that you are also selling your customer base and relationships with vendors that took time to build.

7. Are the company's financial statements reviewed or audited by your accounting firm?

8. Have you considered how the sale should be structured for federal tax purposes? The tax consequences can vary widely depending on how long you've owned the business, the type of entity (C corporation, S corporation, LLC, etc.) and exactly how the deal is structured. By planning ahead with your tax adviser, you may be able to substantially reduce the tax bill. Don't forget to assess state and local tax issues.

Note: The federal long-term capital gains tax is scheduled to increase from 15 percent to 20 percent on January 1, 2011 (and it could go higher in the future). If you are planning to sell your business in the next year, it would be prudent to evaluate the difference in the after-tax proceeds of a sale completed in 2010, versus 2011.

9. Have you documented all of the company's processes, procedures and liabilities? Do they accurately detail how the business performs on a day-to-day basis? You should also have important paperwork readily available, including permits, licenses, incorporation papers and existing contracts. What about outstanding leases, debt and other liabilities? And get a handle on how your company's employee benefit offerings (retirement plans, health insurance, COBRA coverage, etc.) will affect a sale.

10. What will you tell employees, vendors, and shareholders who may hear about a proposed sale? Controlling rumors is very important in terms of keeping the company operating at peak performance. Sign a confidentiality agreement with the parties so that information isn't leaked out.

11. Who is the ideal buyer for the business? Specifically, what attributes does the buyer need in order to complete the acquisition and successfully operate the company? Has anyone expressed interest in the past? Are those individuals appropriately qualified to make the purchase?

12. What role do you wish to have after the acquisition? Would you like a consulting contract or position for yourself and other executives? Further, what level of income do you need to support your current lifestyle as well as your personal goals once the business is sold?

Bottom line: You spent years building your business. When it's time to sell, you want to receive the optimum after-tax price. Consult with us about how to proceed for the best possible outcome. If you would like a useful Due Diligence Checklist, please contact me.