Strategic Financial Management ...on an Outsourced Basis

Surviving Buyer’s Due Diligence
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One day you will want to sell your business and be rewarded handsomely for all the time, effort and resources you put into growing your business. However, before you get to that payday you will have to survive "Buyer's Due Diligence." If you are not prepared it is a painful process where buyers pick apart your business trying to determine if your business is worth acquiring. The good news is they will be asking questions you should be asking yourself everyday or at least every month. Below are steps you can take to survive buyer's due diligence and get the most value for your business.

  1. Close Your Books Each Month and Review the Results

    It should come as no surprise that the first thing a buyer will ask for are your financial statements. You need to be in the habit of reviewing them yourself at least on a monthly basis. For you to review them that means someone needs to prepare them in a way that is meaningful and provides insight as to what is going on in the company.

  2. Detailed Financial Reports

    The financial statements are only worth doing if they can actually tell you something about the business. I know there are problems when I see financial statements where Sales, Costs of Goods Sold and Payroll are single line items even though the company sells many products/services. The more detail the better when it comes to financial statements. You want to be able to show which products/services are profitable and by how much. That kind of detail allows you to run your business better and makes it easier for a buyer to understand the business.

  3. Benchmark

    It is always nice to know how you are doing compared to your peers in the industry. We as Outsourced CFO’s, your CPA and your banker can provide you with industry data that shows how the rest of the industry is performing. It is a great way to find areas of improvement. If the buyer is smart she will be gathering the same data during her due diligence.

  4. Develop the Management Team

    The more dependent the business is on you and you alone the less valuable the business. Buyers are looking for a strong management team not because they are lazy and don’t want to work but because they want to take the business to the next level and they know they can’t do it by themselves. You need to have the right people “on the bus” and empower them to utilize their skills to maximize the value of the business.

  5. Processes and Procedures

    The easiest type of business to sell is a franchise because they have developed a business model that can be taught to just about anyone. Making your business operate like a franchise builds tremendous value. That entails having a manual on how to do everyone’s job in the company. That would include documenting how to prospect and close sales, quote jobs, find new employees, invoice customers, pay vendors, find preferred supplies, receive shipments and stock inventory. Going through this process allows you to find efficiencies and makes your workforce more flexible.

I will end by saying the more talking and explaining you have to do about your business the less likely it will sell for the price you want. Let your updated, detailed financial statements do all your talking. Follow that with a strong management team and documented processes and procedures in place and you have a very attractive business. As an Outsourced CFO our job is to provide you with the financial systems and data to help you make intelligent decisions about the direction of your business so you can maximize cash flow and value.

Tim Moellering is an outsourced CFO with LGI CFO. He can be contacted at 513-498-6629, ttmoellering@lgicfo.com or visit our website at www.lgicfo.com.
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