Selling a business can be a complex and emotionally charged process for any business owner. Whether they are retiring, pursuing a new venture, or simply ready to move on, preparing a business for sale is crucial to maximizing its value and ensuring a smooth transition. Introducing a seasoned CFO into this process as early as possible, ideally five to seven years prior to the transaction, is pivotal in guiding and positioning the company for a successful sale. Here are six things my Partners and I at SeatonHill Partners, a CFO services firm, advise business owners to do in preparation for the sale:
Financial Clean-Up: Before putting the business on the market, it's essential to ensure company financial records are accurate, up-to-date, and well-organized. A CFO should be working with your accounting team to clean up any discrepancies, reconcile accounts, and ensure compliance with relevant accounting standards. We often run into settings where smaller businesses do not have a strategic CFO, but people who run the day-to-day tasks without having the skills to meet the acquirer’s needs.
Financial Projections: A CFO should prepare detailed financial projections that demonstrate the company's growth potential and future earnings capacity. These projections should be realistic and based on thorough market analysis and historical performance. These should also highlight potential areas for growth and expansion that would be attractive to a private equity firm or other buyer. Additionally, identifying key value drivers such as a strong customer base, proprietary technology, intellectual property, or recurring revenue streams will help support financial projections. Putting these projections together, with a presentation for growth potential, is part of the storytelling that will drive the sale price up for the owner. Having a been-there-done-that CFO can be instrumental in that process.
Cost Optimization: Hopefully a company does not wait to sell before realizing a review of the company's cost structure would be beneficial. A strategically minded CFO will look to identify opportunities for optimization. This could involve renegotiating contracts with suppliers, streamlining operations, or reducing unnecessary overhead expenses to improve profitability.
Risk Management: A CFO can help dive deep into evaluating and mitigating any potential risks that could deter prospective buyers or impact the sale price. This may involve addressing legal or regulatory compliance issues, resolving outstanding litigation, or securing key contracts and agreements. Furthermore, the CFO should work together with the legal and advisory team experienced with mergers and acquisitions. This team can guide the sale process, navigate complex negotiations, draft and review contracts, and provide valuable decision support backed by financial models.
Tax Planning: Work closely with tax advisors to develop a tax-efficient structure for the sale that minimizes the tax burden on both the business owner and the buyer. Consider strategies such as asset sales, stock sales, or structuring earnout agreements to optimize tax outcomes.
Financial Structure and Cash Management: A strategic CFO will work with the acquiring company to project the business’s cash requirements and optimize its financing structure — debt vs. equity financing. For example, the CFO will also create relationships with various financing entities to ensure the business has options and flexibility in its financing.
By following these guidelines and working closely with a CFO, business owners can position their companies for a successful sale and maximize value for all stakeholders involved. For companies without an experienced CFO, a CFO services firm like SeatonHill Partners can be a valuable asset to help prepare a company for sale and maximize the potential sale price for the business owner. Preparation is key, so start early, enlist the right expertise, and navigate the sale process with confidence and diligence.
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Shyamal Parikh is a Partner in the Dallas office of SeatonHill. Parikh is a highly accomplished financial executive with a strong history of directing fiscal activities in organizations from startup to $16 billion in revenue. He has experience in private equity, private and publicly held companies in a variety of positions. Connect with him on LinkedIn.
