Real estate brokers advise home owners on how to “stage” or enhance the appearance of their property when their house is placed on the market. A business owner can similarly enhance the value of the business to be sold with the advice and assistance of his or her attorney.
Aside from sprucing up the physical appearance of the office, retail store, etc., and having all machinery in good repair, as necessary, the business itself can be presented to buyers in its best and most valuable condition by a few simple preliminary steps before the buyer digs into its due diligence process. First and foremost is the condition of the financial statements. Are they current? Do they fairly present the current financial condition of the business or do they need some clean up: intercompany transactions, loans to or from principals, bad debts or accounts that need write offs or write downs, assets that will be retained or don’t belong in the business. In short, does the business owner have confidence in the historical earnings as stated?
What about other important business records? Is the stock ledger or equity status of the current owners available and up-to-date? Can the buy-out of any former equity owners be clearly documented? Is there a minute book that records and authorizes significant transactions in the history of the business?
Buyers will want assurance of continuity, and will look at lease terms and conditions; relationships with vendors and critical sources of supply—do agreements with these parties need extensions or modifications?
Does the business have relationships with key employees locked down? This does not necessarily mean employment agreements, but certainly does mean calm labor relations, fair wages and confidentiality agreements, aside from non-compete agreements, to the extent enforceable in your state.
If the business has intellectual property, have appropriate steps been taken to protect it? Have trade marks and trade names been searched to confirm the absence of conflicts? Have steps been taken to register these assets?
A seller can be assured that the buyer will be closely examining all of the above, and more. If any problems are uncovered in that due diligence examination, in addition to delaying a closing, it could seriously affect the purchase price received at closing. The best way to achieve the highest value for your business in an efficient sales transaction is to take the time and address these issues before the business is even listed for sale.
If you’ve ever sold a house, you should appreciate that “staging” the property before showing it adds value. The same is no less true when contemplating the sale of your business. Consult your attorney to show how to maximize the return on your years of investment.
ABOUT STUART NEWMAN
Stuart B. Newman has been engaged in corporate and securities practice for over forty years, focusing on corporate law, private equity transactions, mergers and acquisitions and capital formation through public offerings and private placements. Stuart studies his clients’ businesses thoroughly and has made valuable contributions to a broad range of business topics such as joint ventures, product development, finance, investment banking, marketing and personnel. He has served as a director on the boards of both publicly traded and privately held companies, contributing his unique combination of business acumen and broad legal experience. For example, Stuart was selected by the secured lenders of one of the largest commercial laundries in the New York metropolitan area to serve on the Company’s Board as its sole director to guide the Company successfully through a sale of its assets during a Chapter 11 Reorganization Proceeding.