By Denise Rondini, Vice President of Hart Marx Advisors
You’ve realized that you want to spend more time with your family, switch careers or retire. In other words, you are ready to sell your business. But before you put up the for sale sign, you have to ask yourself, “Is my business ready to be sold?”
The most likely answer is – “Not at this point.” In fact, M&A experts say you should allow at least two years to prepare your business before you take it to market.
The following is a list of things you need to do:
Assemble a team of experts: This should include your accountant and attorney, but you may also want to consider a Mergers and Acquisitions (M&A) advisor. When selecting an M&A advisor, look for someone who has experience selling businesses similar to yours. They will be in the best position to help you, because they understand the nuances of the parts and service market. They also know how to identify potential buyers, both strategic and financial. Examples of strategic buyers might be other distributors or repair garages that are looking to expand. Financial buyers are typically investors who may buy a business with the goal of reselling it within a set number of years, typically 5.
Take a critical look at your operation: Try to put yourself in the shoes of a potential buyer. Start with something as simple as reviewing how your facility looks. Walk around the outside and imagine how a first time visitor would see it. If you don’t like what you see, take the necessary steps to make improvements. While a buyer may be most interested in what your financial statements look like, the way your repair garage or distributorship looks can make an impression. Do the same with the inside of the facility. Are your bay floors covered with oil and grease? Is your parts inventory neatly placed on shelves or in bins, or are parts stacked in haphazard fashion?
Dispose of obsolete inventory and equipment: Almost every distributor and repair garage owner has parts on the shelf that have not sold in years, or machinery and equipment they are no longer using. You should consider liquidating if at all possible. If that is not possible, it may be necessary to discard. Potential buyers only want parts on the shelves that are sellable and equipment that is functional and well maintained. Even if you have to pay to have items hauled away, you are better off having a clean and organized workplace free of clutter.
Take time to locate detailed documentation: The potential buyer is going to want to know about the core elements of your business, so they can accurately assess your operation. Gather things like process manuals, job descriptions, sales reports, contracts with suppliers, corporate records, etc. Locating these documents before talking to a potential buyer will help identify what is missing and give you time to find or develop the materials. Having everything ready and organized will speed up the process during future due diligence.
Review your financial statements: Many private businesses like parts distributorships and repair garages may run some personal expenses through the business. You will want to identify and remove those from your business financials. Even though these expenses maybe fully justifiable they reflect poorly on earnings and are not expenses the new owner will expect to assume going forward. The cleaner your financials are the more straight forward the transaction will likely be.
Resolve outstanding issues: Things like pending lawsuits, contract disputes or other unresolved legal, tax, banking or financial issues will reflect negatively on your business. Try to work through these items before going to market. If you are unable to do so, make the potential buyer aware of their status up front and the efforts you have made to clear them up.
Perform a sales projection: All potential buyers want to see where a business is headed. Presenting realistic sales projections based on customer commitments or historical performance will help them evaluate how they can make money running your repair garage or parts distributorship.
Get a business valuation: You need a realistic view of what your business is worth. Businesses typically sell on a multiple of earnings basis. The multiplier varies by industry as well as by business size. But you need a starting point so have a professional help you with the valuation. Choose someone familiar with the truck parts and service aftermarket who knows what similar businesses have sold for. Additionally, make sure you clearly understand the underlying asset value of the business. This value may also play a role in helping determine the worth of a company.
Willingness to address the items above before taking your business to market, will prove valuable on the road to sale. Selling your business can be an exciting, but also stressful event. Your efforts to spot weaknesses early in the process and work to turn them around will prove well worth the effort. SOLD!