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Sale Of Your Business

2017 XPX New England Summit – May 4th

I hope you will plan to join me, along with almost 200 business owners and their advisers at Waltham Woods in Waltham, MA on May 4th at 8:00 am for this year’s XPX New England Summit:

FLEXIBLE & INTENTIONAL TRANSITIONS

Keeping Your Business FIT in Uncertain Times

Karyn Polito, Massachusetts’ lieutenant governor, will kick us off at 8:00 am, addressing how the current political environment can impact your business growth. Following the lieutenant governor’s presentation, we have a variety of local CEOs and experts addressing topics related to growing business value, and insights into sale and other transition options.

  • Sean Kavanagh, the CEO of The Ariel Group, will speak about “FALL RISK: How my nearly fatal bicycle accident changed the way I run my life and my business.”
  • Kathy Berardi, the Founder of Imugen will discuss the challenges faced and overcome during the various stages of Imugen’s 27-year life, with particular emphasis on the business and personal decisions and emotions experienced in the process of selling the company and life in the post-acquisition period.
  • A panel of CEOs and HR experts will discuss “The Leader-Leader Model for Fast Growth Companies” and how talent acquisition and retention works in hyper growth businesses.
  • The CEO of J&G Foods will share how they transitioned from breakeven to 5x value over two years.
  • A panel of CEOs of business services companies will discuss “Leveraging Intangible Assets to Increase Business Value.”
  • Another panel will share insights on what you can do “When Corporate Transformation and Culture Clash.”
  • Rob Waldron, the CEO of Curriculum Associates, will share the story of how he and his team transformed a traditional educational publishing company into a digital publishing powerhouse through hiring the right people, having shared values and a philanthropic culture to grow the business value and make possible one of the most unique business transitions you’ll ever hear of.
  • NEW THIS YEAR: Live CEO Case Studies.  Three participating CEOs will showcase their company and a challenge they are facing.  Each CEO will have a panel of the best experts in the field assigned to them who will have been briefed on the issues at hand and come prepared with questions and ideas.  You will be privileged to listen in on the conversation, ask questions and make suggestions of your own.  At the culmination of the three sessions, each CEO will share what actions they will take based on the dialogue they participated in.  Currently, Howard Goldman, CEO of Humboldt Storage & Moving and Wendy Foster, President and CEO of Big Brother Big Sister of Massachusetts Bay have committed to participate – but there’s still room for one more!  Let me know immediately if you’d like to take advantage of this opportunity.

This event generally sells out early, so please register today at https://exitplanningexchange.com/event-2287859/Registration.  See you at the Summit!

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Doing Well By Doing Good – Part 2

After noticing on a box of King Arthur Flour that it was a B Corporation, I did some research to understand exactly what that is.  Here’s what I found at bcorporations.net:

Interesting… I was taught in business school that the purpose of every business is to maximize shareholder value.  But according to Isaiah 58 (see my previous post), and apparently a larger and larger group of businesses around the world, maybe we’ve had it all wrong for all these years.

The B Lab is a non-profit organization that developed the B Impact Assessment and B Analytics to enable B corporations to measure their impact—and the impact of the businesses with whom they work—with as much rigor as their profits.  Every year, they publish several lists of the “Best” B corporations, which you can find here.

On the “Best Overall” list, I found a number of New England companies that span a wide variety of industries, including:

W.S. Badger Co. – a manufacturer of natural body care products located in Gilsum, New Hampshire.

South Mountain Company – an employee-owned design/build firm on Martha’s Vineyard.

Imajine That – an interactive children’s museum in Lawrence, Massachusetts.

Trillium Asset Management – an employee-owned investment management firm with over $2 billion in assets under management, focused on socially responsible investing, and headquartered in Boston.

Prosperity Candle – a marketer of candles made by women who have recently resettled from refugee camps and are working to build a brighter future for themselves and their families in the United States.  Prosperity candle is headquarter in Easthampton, MA.

One Earth Designs – the manufacturer of the SolSource Solar Grill, located in Massachusetts.

Atayne – a manufacturer and marketer of outdoor and athletic apparel based in Brunswick, Maine.

Alternatively, or sometimes in conjunction with being a certified B corporation, 30 states (including Massachusetts, Rhode Island and Vermont) let you organize your company as a benefit corporation, a new legal tool to create a solid foundation for long term mission alignment and value creation. It protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO.  One of the requirements in every state is that all benefit corporations are required to create a benefit report annually. These transparency provisions serve not only to inform the public about the overall social and environmental performance of the benefit corporation, but also to inform directors so they are better able to meet their duties and shareholders so they are better able to exercise their rights.  You can read more about benefit corporations here.

So get out there – as you think about the strategic plan for your business in 2017 and beyond, maybe it’s time to start planning not just how to grow revenues and profits, but also how you can be the change you want to see in the world.

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Doing Well By Doing Good – Part 1

One day last week, I saw the following verses from Isaiah 58 (The Message version) show up in my Facebook news feed:  “To all appearances they’re a nation of right-living people—law-abiding, God-honoring. They ask me, ‘What’s the right thing to do?’ and love having me on their side. But they also complain, ‘Why do we fast and you don’t look our way? Why do we humble ourselves and you don’t even notice?’ Well, here’s why: The bottom line on your ‘fast days’ is profit. You drive your employees much too hard. …Do you think this is the kind of fast day I’m after…? … This is the kind of fast day I’m after: to break the chains of injustice, get rid of exploitation in the workplace, free the oppressed, cancel debts. What I’m interested in seeing you do is: sharing your food with the hungry, inviting the homeless poor into your homes, putting clothes on the shivering ill-clad, being available to your own families.“

I found this thought provoking, as I try to be a successful business person while living a life as a Christian.  At the moment, I don’t have any employees to drive too hard, but I have in the past, and did try to treat them as these verses suggest.  That included being careful of their welfare – if it’s going to be a snow day, let’s all work from home, rather than driving on treacherous roads; not asking them to do something I wasn’t willing to do myself; respecting them and their efforts; compensating them fairly for the work they accomplished. And don’t miss the last phrase “being available to your families.”  It’s very difficult when you’re the boss to turn it off and focus on your family!

Interesting enough, later that day, I was taking some time off in my kitchen, baking biscuits from scratch for a “breakfast for dinner” that our church was serving that night at a local soup kitchen, and as I was absent mindedly kneading the dough, I noticed on the side of the King Arthur Flour box a promotional blurb about their status as a certified B Corporation, and how that means they’re not just focused on profits, but also on taking care of all their stakeholders – employees, customers, community.  Sounded related to the verses I’d read that morning in Isaiah 58, so I decided to do more research to learn what a B corporation is.

Next week, I’ll share with you what I learned.  But in the meantime, perhaps you want to think about whether your focus as a business person is on the right things – is it just bottom line profit, or are there other stakeholders that you should be considering?

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Will Your Business Sell?

One of the first question that business owners typically ask me is “What percentage of the deals you work on close?”  Interesting question – I think I know why you ask this – what you really want to know is if I will sell YOUR business, and you think that past results indicate future trends.

The truth is, the question isn’t that simple.  I looked back over the transactions I’ve work on over the last ten years, and analyzed why certain companies didn’t sell.  Here’s what I learned:

  • 33% of the deals that didn’t close were because offers came in below the business owner’s expectations. Why is that?  Well, sometimes it’s because the market for private companies is incredibly inefficient, and as much as we try to estimate how buyers are likely to value your business, we won’t really know until offers come in the door.  But more often, the reason is that the business owner got sidetracked by the sale process (because let’s face it, it’s a lot more exciting than the same-old same-old of running your company) and took their eye off the ball, so business performance started to decline.What should you take away from this?  The best thing you, as the owner, can do to ensure you get a good price for your company is to sell on the upswing (when business is growing), and to stay focused on growing the business during the sale process.
  • 25% of the deals that didn’t close were because there were no interested buyers. “How can that be” you ask?  In one situation, it was because the industry had been disrupted by the internet and the company was on the decline.  Companies already in that sector had enough problems of their own and didn’t want to buy more.  Buyers outside the industry had no interest in acquiring a company where the industry was moving in the wrong direction.  In another case, the company’s business model was so different from that of the rest of the industry, that while the owners were making potfuls of profit every year, the buyers looked at it and said “we can’t run the business under that model, so our profits will be significantly lower” and they declined to insult the owner with an offer that they knew would be too low.What can you learn from this? First, don’t wait too long. If you start to sniff disruption coming at your industry, it may be time to cash in.  Second, talk to your competitors – how do they do what they do?  It’s great to be able to operate more efficiently and more profitably (and PLEASE – invest the money to buy industry benchmarking reports and the find out how you compare), but if you’re doing something significantly differently than everyone else, you may scare off potential acquirers.
  • In 17% of the cases, the deals fell apart because my client couldn’t get through the financial due diligence. In one case, the buyer discovered fraud; in another, the financial systems were inadequate, and the bookkeeper wasn’t capable of maintaining adequate and accurate accounting records.Lesson learned?  It pays to invest in the right accounting and finance staff, who can implement and use the financial systems correctly, so that you can provide timely, accurate financial information to the buyer during due diligence.  And can we talk about audited financials?  Yes, they come at a not-insignificant cost, but they will greatly reduce the possibility that you will fail due diligence, and speed up the buyer’s due diligence at the same time.
  • Notice that in 17% of the deals, my client changed their mind! Yes, it happens.  It wasn’t an issue of valuation, but they ultimately discovered they weren’t emotionally ready to give up control over their company.  If you’ve ever wondered why M&A advisors require an upfront fee – this is one of the reasons why.  Nine months of work – down the drain!What’s your takeaway?  Be sure you’re ready to sell.  It costs you and your management team time, costs you money, and leaves a lot of unhappy people if, at the end of the day, you’re just not ready to sell.  You need to have something that you’re excited about going TO – and golf every day isn’t it.  If you need some help figuring out what the next thing is, talk to my friend Paul Cronin at The Platinum Years.
  • And finally, in 8% of the situations, the business owner brought me in just to help them negotiate and complete a transaction with one buyer – someone who knocked on their door one day and said “Hey, I’d like to buy your company!” only to walk away months (and many hours of effort) later without submitting an offer.Five words of advice:  “One Buyer Is No Buyer.”  If someone approaches you about buying your business, there are likely other, similar companies out there that would also have an interest.  If you’re going to go through all of the effort to have me gather the information the buyer needs to submit an offer, let me use it to bring multiple buyers to the table.  Multiple buyers bidding against each other for your company results in the best outcome – at a minimum, it can help push a deal to a conclusion faster, and in the best case, it results in more money in your wallet.
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Business Owner Blind Spots: Part 1 – Pipeline

There are several areas where the owners of privately held smaller businesses (less than $10 million in revenue) typically have blind spots. Areas that a buyer will focus on, and yet the business owner usually spends little time thinking about. The first one we’ll discuss is the sales pipeline.

First of all, what is a sales pipeline? A sales pipeline is the process that takes you from initial contact with a prospective customer and follows through the different stages (the Sales Funnel) all the way through to the actual sale.

 

sales Pipeline

                             Sales Funnel

A pipeline report can be maintained in either a CRM system (liked Salesforce.com) or a spreadsheet, but includes the following information: the prospect’s name; what stage of the pipeline they are in; the estimated value of the opportunity; the expected time to close; and the next step.  Summing the potential revenue at each stage of the pipeline and multiplying it by the weight assigned to that stage of the sales process gives you the weighted pipeline.

So why is having a sales pipeline important? It is important because it helps you to forecast sales revenue, and an ability to forecast sales revenue with accuracy drives the value of your business.

Companies without a strong sales and marketing process cannot reliably predict sales revenue, and your lack of a pipeline may indicate to buyers that you don’t have a sales and marketing process at all, but instead, wait for the phone to ring.  If there’s too much reliance on inbound sales calls and referrals, your company presents a high risk profile to potential buyers because your sales are likely to be erratic and difficult to project, and the business likely has a high dependence on you, the owner, and your relationships and reputation to bring in business.

On the other hand, a marketing-led company, which has created a sales and marketing machine that is independent of the owner can usually show a healthy, growing pipeline because of the mechanized, multi-channel, campaign orientated and measured approach to lead generation. On a regular basis, managing your pipeline helps you to understand at what stage any deal is, whether you have enough deals on the board to achieve your revenue goals, and to identify any prospects that aren’t getting the attention they need.

So to summarize: managing your sales pipeline today will help you to grow your revenues and your business value. During the M&A process, an ability to show buyers a tightly managed sales pipeline will help to give them confidence in your financial projections and increase their willingness to pay a premium price for your business.

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The Top 3 Things to Know About Add-Backs

Most business owners have heard about add-backs. These are the nebulous things that you can add back to your income statement when presenting it to a buyer to “normalize” your results. So what do you need to know about add-backs?

  1. Why are add-backs important? Add-backs normalize the profitability of your business to reflect the profits that would be experienced by a third-party owner. Usually, these add-backs increase the profitability of your business (your EBITDA), and since most businesses are valued at a multiple of EBITDA, these add-backs can have a significant positive impact on your sale price.
  2. What can I add back? Here are some of the most common add-backs I’ve found in my 30 years of M&A transaction experience:
    Excess Owner Compensation – Are you paying yourself in salary and bonus amounts in excess of what a non-owner executive doing your job would get paid? Those excess amounts can be added back. But a warning here – be careful how much you add back because if the new owner wants you to stick around and continue to run the company for a few years, they’ll expect you to be willing to work for the salary that you left in.
    Above Market Rent – Many business owners own the company real estate in a separate legal entity and pay themselves rent. If you’re charging your company more than the market rate rent, then add back the difference. But like with owner compensation, you have to be willing to lease the real estate to the new owners at the same amount that you included in your income statement.
    Owner Car Leases – That beautiful Mercedes parked in your garage may be costing your business thousands of dollars a year in lease payments. You’ll be responsible for making those payments personally after you sell the company, so add back those expenses now.
    Whole Life Insurance Premiums – As part of a division of a larger company, these policies wouldn’t be needed, so you can add back the premium amounts.
    Family Member Salaries – If you’re paying family members who don’t actually work in the business a salary, add them back.
    Personal Travel & Entertainment – You can’t add back business-related travel, but most owners of privately held businesses have a lot of T&E that may be justified to the IRS as business travel, but let’s admit it, it’s really a vacation or a date night with your spouse.
  3. What can’t I add back? What you can’t get away with adding back is as important as what you do add back.
    Employee Bonuses – I know you believe that these bonuses are completely discretionary on your part, but when you have a history of paying your employees bonuses for a number of years, they have become part of your employees’ expected compensation. You can’t add them back and convince a buyer that they wouldn’t have to pay the bonuses. Do you really think the buyer wants to be the bad guy, when your employees will be nervous about the new owner to begin with?
    Most Investments – This category isn’t as cut and dried as some. For instance, you may be investing to support future growth, and so you might be able to add-back some of those costs. However, investing in replacement equipment, systems or software is a normal part of doing business, so that can’t usually be added back.

If you’d like help to determine what you can add-back to calculate your adjusted EBITDA, please contact us.

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Pay No Capital Gains On the Sale of Your C-corp Stock

You are probably aware that if your small business is structured as a C-corporation, you will face significant tax payments if you sell the company in a transaction structured as a sale of assets.  And unfortunately, most buyers want to buy assets, rather than accepting all of the hidden liabilities that may exist when they buy the stock.  But if you meet the criteria, you may be able to compromise with the buyer by selling stock, but at a lower price, due to the tax exclusions available to some small C-corporations, which will enable your after tax proceeds to be higher even with a smaller purchase price.

The Small Business Jobs Act of 2010 included a provision amending Section 1202 of the Internal Revenue Code of 1986, to permit the temporary exclusion of 100% of any capital gain realized on the sale of certain Qualified Small Business Stock “QSBS” as defined in that Code section.  Previously, certain QSBS holders could exclude 50 to 70% of the capital gain on the sale of their stock.  But the SBJA increased the exclusion to 100% for QSBS acquired between September 28, 2010 and December 31, 2010.  The end date for this 100% exclusion was extended through December 31, 2014, but Congress apparently decided it was a good idea, so they made the exclusion permanent.  On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 into law, which retroactively renews and permanently extends the 100% capital gain exclusion on certain dispositions of QSBS acquired after September 27, 2010.

Here is what you need to know to understand if the exclusion applies to you.  Key definitions:

Definition of “Qualified Small Business”

QSBS may generally only be issued by a “qualified small business,” within the meaning of Code Section 1202, which generally requires that the issuer:

  • Be a domestic (US) C corporation,
  • Have aggregate gross assets which, at all times on or after August 10, 1993, through and immediately following the issuance of the QSBS, do not exceed US $50 million.

The definition of “qualified trade or business” specifically includes start-up activities and certain research and experimentation activities, but expressly excludes certain activities, such as professional services such as law or medicine, banking and finance, farming, mining, and the operation of hotels and restaurants.

Definition of “Qualified Small Business Stock”

Section 1202 also requires that the stock meet the following conditions in order to qualify as QSBS:

  • The stock must be “originally issued” to the taxpayer by a U.S. corporation that is a qualified small business on the date of issuance. (So in other words, you can’t have purchased the stock from a prior owner – it must be a business that you started.)
  • During substantially all of the taxpayer’s holding period, at least 80% (by value) of the corporation’s assets must be used in the active conduct of one or more qualified trades or businesses.
  • The corporation may not (directly or indirectly) redeem more than a de minimis number of shares held by a taxpayer to which the QSBS is issued, or certain related parties, within a four-year period beginning two years prior to the issuance of the QSBS.
  • There may be no “significant redemptions” of the issuing corporation’s stock from any party during the two-year period beginning one year prior to the QSBS’ issuance.

Other criteria to benefit from this exclusion?

  • The QSBS must have been held for more than five years.
  • The amount of gain that any single taxpayer can exclude with respect to a particular company is generally limited to the greater of US$10 million or 10 times the taxpayer’s adjusted basis of the QSBS.

How much can you exclude?

  • 100% of any gain realized on the disposition of QSBS acquired after September 27, 2010.
  • 50% of any gain realized on the disposition of QSBS acquired before February 18, 2009.
  • 75% of any gain realized on the disposition of QSBS between February 18, 2009 and September 27, 2010.

Of course, the issue isn’t as cut and dried as this post may make it seem, so if you are considering the sale of your C-corporation and want more information about these tax exclusions, please contact me and I’ll put you in touch with a tax expert who can help you to navigate these waters.  If you’d like to do more research on your own, the IRS can help.

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From the Outside In – The Buyer’s Perspective on Business Value

Have you ever wondered how a buyer would look at your company? What’s important to them? What convinces them to pay more for your company than for your competitor? Now is your chance to get some insight into those very questions.

I’m the President of the Boston Chapter of the Exit Planning Exchange, and on April 28th we’re holding our flagship event, the XPX Summit, at Waltham Woods Conference Center in Waltham, MA. Our mission as an organization is that “Every owner creates a business with sustainable and transferable value.” The 2016 XPX Summit supports this mission by providing a full day of valuable education focused on building business value.

Keynotes include Christopher Oddleifson, the CEO of Rockland Trust, who will join a conversation about hands-on buyers’ experience evaluating potential acquisitions, due diligence on lessons learned, successfully integrating “new comers” to the Rockland Trust culture and how these lessons may apply to privately held businesses. Caleb White, an 8th generation family owner of Ensign-Bickford, will not only chronical EBI’s successful sale of its legacy business and its transformation to a more balanced portfolio of manufacturing companies, but will also outline three keys to survival across 180 years and 8 generations of ownership. Dr. Daniel Korschun, co-author of We Are Market Basket will share his firsthand accounts of what he and co-author Grant Welker learned from the streets and executive suites as they studied and documented the unprecedented Market Basket story while it erupted and unfolded during the summer of 2014. He will address the impact of leadership and culture on the success and resilience of an extended family business.

We also have a great selection of breakout sessions, including:

  • Are You Getting in Your Own Way?
    How to Increase Your Business’ Value by Reducing its Reliance on You, the Owner
  • When You Get to a Fork in the Road, Take it!
  • Will Unlimited Vacation Time and Allowing Dogs in the Workplace Increase the Value of Your Business?
  • Leaving My Business – On My Timetable, To My Ideal Successor, and At My Price

 

I hope you’ll decide to join us. You can find more information and register at Exit Planning Exchange 2016 Summit.

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The Top 5 Rules When A Buyer Calls

One day the phone will ring, and on the other end will be a voice telling you they’re interesting in buying your company.  That single unexpected phone call can be the beginning of a one of the most significant events in your life as a business owner – deciding if it’s the right time to sell the company.

When you get that call, and every business owner will at some point, there are 5 rules that are critical to the outcome (whether you decide to sell or not).

Rule #1:  Be prepared for the call in advance.  That means you need to have a strategic plan in place – do you intend to run the business for the next three to five years, or are you open to the possibility of a sale?  Have you determined what your “number” is?  The “number” is the purchase price that will enable you to retire to the lifestyle you’ve planned.  Often times when I meet with business owners, they insist they’re not for sale, when in reality, it’s just a matter of the right price.

Rule #2:  Know what your company is worth.  Obviously, it’s hard to evaluate a real offer for the business if you have no idea what the business is worth.  And while public companies can learn their value at the close of the market every day, as a private company you don’t enjoy that simplicity.  It may be worth having a formal valuation done every few years (and if you’d like to do so, I’d be happy to make a referral to a resource who can help you).  Alternatively, perhaps you’d like a Business and Value Assessment to give you a broad idea of the valuation range you could expect and what hurdles there may be in getting a deal closed.

Rule #3:  Protect your company’s confidential information.  When a buyer calls, often they will ask for a variety of confidential information about your business.  Before you provide any information at all, you’ll want a strong non-disclosure and confidentiality agreement in place, even if the buyer isn’t a competitor.  And once that is in place, it’s critical to release the information a little at a time, revealing only as much as you are comfortable with until you are convinced that a transaction with this buyer is desired and possible.

Rule #4:  Keep it quiet.  Keep these negotiations confidential for as long as possible.  Employees get very nervous hearing that a sale of the business may be underway, and you don’t want your best employees to jump ship just when you’re trying to get a deal done.  It’s also critical to limit the rumor mill, because if the deal falls through, it can have a negative impact on your company’s reputation, since people may assume there was something wrong with your business.

Rule #5:  Think about other possible buyers.  Just because one person is interested in buying your business doesn’t mean you need to sell it to them.  If there is one interested buyer, there are likely to be other, similar buyers who would also have an interest.  The only way to be sure you’re getting the best price for your business is to have competitive friction.  An M&A advisor can be helpful here for two major reasons:  1) they can quickly reach out to a group of other potential buyers to create a competitive environment; and 2) they can help you to evaluate whether the offer on the table is pre-emptive enough that it’s worth accepting before testing the market.

When you answer the phone and it’s a potential buyer on the other end, your next call should be to Seed to Harvest so that we can help you evaluate the offer and determine next steps.  Contact us any time.

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What Are GAAP Financials and Why Should I Care?

“GAAP Financials” means the financial statements of a business (income statement, balance sheet and cash flow statement) prepared according to “Generally Accepted Accounting Principles”, a collection of principles, standards, and conventions used by the U.S. accounting community for reporting financial information. The major purpose of GAAP financials is to match income and expenses, which the cash-based financials used by many businesses don’t do. In order to truly match income and expenses, you may have to defer some revenue related to products or services for which you have been paid, but which you have not yet provided to the customer. On the expense side, you may have to estimate certain expenses that you have incurred, but for which you have yet to receive a bill, or alternatively, delay recognizing as an expense some stock that you already paid for.

GAAP financials are important to buyers for a number of reasons.

1. You may believe that you are selling the assets of your business or your stock in the business, but you are really selling the future income stream those assets can generate for the new owner. GAAP financials provide a buyer with confidence in your company’s historical performance, which helps them to be more comfortable with your projections for the future.

I had a software client a number of years ago that had about $6 million in revenue and $1 million in EBITDA. When they engaged me to sell the company, I discovered that they were not preparing their financial statements according to GAAP, and despite the fact that I am not a CPA, one look at how they prepared their statements made me question their accuracy. Before we took the company to market, they had an outside accounting firm convert their financial statements to GAAP, and we discovered that there were some significant mistakes in their revenue recognition. This $6 million revenue/$1 million EBITDA company turned out to be a $5 million revenue, money losing company! It did not stop us from getting a transaction closed, but if the buyer discovered this during due diligence, the deal would have died.

2. All publicly held companies are required by federal and state securities regulations to report their financial statements in accordance with GAAP standards. If the likely buyer of your company is public, they will have to consolidate your financial results with theirs, and that requires GAAP financial statements. Furthermore, their financial due diligence team will be used to analyzing GAAP financials and if your statements aren’t GAAP, it will hinder their ability to complete their due diligence, and in fact, it may give them concerns about how well the business has been managed overall.

3. Lenders generally expect to see GAAP financials. A buyer is unlikely to have enough cash in their bank account to buy your company for the price you want, so they will need financing. If you have GAAP financials you will make it easier for them to line up their financing, thus increasing the likelihood they will be able to close on the purchase of your business.

If you’re not sure if your financial statements are prepared according to GAAP, please contact me and I’ll put you in touch with the appropriate accounting resource to help you.

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