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Start Positioning Your Business Now for the Day You Sell It

Even if you don't plan to sell your business for the next 10 years, positioning it now for sale can help you get top dollar and favorable tax treatment when you do sell. Here are some ways you can prepare for selling your business.

Know what makes your company unique
What keeps your customers coming back year after year? What is it about your business that gives you an edge over your competitors? Does your company have a reputation for providing world-class service? Do you own patented technology or intellectual property such as trademarks or brand names? Understanding what makes your business unique will allow you to safeguard that X factor as you position your company for sale.

Reduce costs and improve operations
Review your operations to see where you can reduce costs and sharpen your efficiency. If your sales were up 20% for the last two years but your bottom line is flat, buyers might not compensate you for the increase in sales and might even offer less. Improve your operations now so your income will rise to match sales and make your business more attractive to buyers. If sales are down, it's even more important to cut costs now to preserve the value of the business.

Be sure you're running your company like a business. Don't keep employees you know you should let go; get out of markets that are no longer profitable. But be careful not to kill what makes your business unique.

Straighten up your books
Potential buyers will be looking closely at your books and inventory and will use any discrepancies to try to negotiate a lower price. Take stock now. Make sure what is on your books matches your actual inventory and that your financial statements are accurate.

Discrepancies will scare off buyers who don't feel they know what they're getting. Or a buyer might go in knowing there are discrepancies, take 60-90 days to perform due diligence and use the results to try to renegotiate the price.

Get rid of excess assets and liabilities
Get assets and liabilities off the balance sheet if they don't belong there. Sell any excess assets now if you feel a future buyer might not give you full value for them. They might even reduce the value of your business.

Have a solid management team in place
How well could your company run without you? Having a strong management team is appealing to potential buyers and is an asset to you. An established management team places the value of your company in the business itself rather than in you, freeing you to retire or go on to your next venture when the company is sold.

Convert from a C corp to an S corp
The way your business is structured-as a C corporation (C corp) versus an S corporation (S corp)-can make an enormous difference when it comes time to sell your business. If you have a C corp and are considering selling your business or transferring it to your heirs in the next 10 to 15 years, consider converting to an S corp now.

Do your estate planning well in advance
If you're thinking of selling your business or transferring it to the next generation in five years, do your estate planning now. It's tough to take discounts for lack of marketability and control of a privately held firm when you have three letters of intent on the table. In that case, most of the uncertainty in the company's valuation has been resolved and you will have missed opportunities to legally avoid tax.

Questions about preparing to sell your business?
Contact Patrick F. McNally, Partner in Charge of Corporate Finance Consulting, Blackman Kallick at 312-980-2934 or pmcnally@BlackmanKallick.com.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.