Free Newsletter
To readers: M&A Monthly columns consist of paid content from companies and organizations that have information and opinions to share with the business community. They do not represent the views of Minnesota Lawyer. Columns are accepted on a variety of topics and are subject to approval by Minnesota Lawyer management. To contribute contact Bill Gaier at 612-584-1537 or [email protected].
By: Leah M. Berend, CPA
Selling your business to a private equity buyer is an exciting venture, one that promises a rewarding and a bright future. Yet, before embarking on this path, it’s crucial to get a head start on the financial records needed to sell your business.
The process is a marathon that comes with complex, intricate maneuvers where financial transparency and clarity are essential. Well-prepared financials serve as your guiding light, illuminating the path to a successful deal.
Enhance Transparency for Accurate Valuation:
Imagine your financial statements as the windows through which prospective buyers view your business. The due diligence process seeks transparency to evaluate your company’s risks and opportunities accurately. Well-prepared financials offer this transparency, enabling potential buyers to understand your business’s financial position, strengths, and areas for improvement.
This clear insight empowers private equity buyers to assign a fair valuation to your company. It helps them make informed decisions about the deal, increasing the likelihood of a successful transaction. The more transparent your financials, the easier it is for buyers to navigate the complexities of your business and make a confident investment. For example, a business owner’s tax returns as the only financial statements provide for some murky viewing while audited three statement financials with a trial balance are the gold standard.
Reduce Risk in the Transaction:
Mitigating risk is at the forefront of every private equity buyer’s mind. They approach acquisitions with caution, always on the lookout for potential pitfalls that could jeopardize their investment. Well-prepared financials act as a safeguard against these uncertainties.
Thorough due diligence significantly reduces the risk associated with purchasing another company. By identifying potential issues early in the process, well-documented financials help buyers avoid unpleasant surprises down the road. The quality of financial records provides them with the confidence to move forward with the transaction.
Save Time and Money for Everyone Involved:
Time is a precious commodity, and in the world of M&A, it’s synonymous with money. A protracted due diligence process can lead to frustration and increased costs for both you, the seller, and the private equity buyer. However, when you’ve prepared for this critical phase, you can turn it into a swift and efficient journey.
Well-prepared financials are your ticket to a streamlined due diligence process. They enable both parties to save valuable time and resources. Speed to close is on both parties’ minds and this efficiency solves several deal headaches.
Build Trust as the Cornerstone:
Trust is the cornerstone of any successful business relationship, and M&A transactions are no exception. Due diligence is, at its core, conducted to establish trust between you, the seller, and the buyer. Well-prepared financials play an integral role in this trust-building process.
Providing accurate and reliable financial information demonstrates your commitment to transparency and integrity. It signifies that you have nothing to hide and that you’re dedicated to making the transaction as seamless as possible. This trust not only expedites the deal but also fosters a cooperative and productive partnership post-acquisition. It sets a precedent for open communication and mutual respect, enhancing the overall success of the venture.
Identify and Resolve Problems Ahead of Time:
The primary purpose of preparing for due diligence is to proactively address potential issues before unveiling your business to the market. Well-prepared financials serve as your early warning system, helping you spot problems and develop solutions to rectify them.
By meticulously scrutinizing your financial records and addressing any discrepancies or opacity, you position your business for success in the eyes of private equity buyers. It shows your dedication to a smooth transition and reinforces the appeal of your company as an investment opportunity. It demonstrates that you’re not just selling a business; you’re offering a well-prepared and well-thought-out opportunity.
In conclusion, well-prepared financials are not merely a requirement; they are your secret weapon when selling your business to a private equity buyer. They provide transparency, mitigate risk, save time and money, build trust, and empower you to identify and resolve issues before they can derail the deal. As you embark on the journey of selling your business, remember that the preparation of the books and records can be a great ally, ensuring the best possible outcome for your future and that of your business.
Leah Berend is the Chief Financial and Chief Administrative officer of Oxbow Industries.
With over $3.0 billion corporate financial transactions completed, Oxbow Industries is dedicated to building businesses in partnership with their management teams. Oxbow seeks to invest in leading middle-market companies with outstanding leadership teams and a significant opportunity for equity appreciation. Learn more at https://protect-us.mimecast.com/s/caYVCNkrEmT0ZXPpUmwQnZ?domain=oxbowindustries.com.
