Transaction Readiness: Preparing Today to be Your Best TomorrowJanuary 22, 2023
Sometimes we don’t know when a good thing is right around the corner. When you are not expecting that good thing, it can find you unprepared and scrambling, or worse… missing out altogether.
You have likely heard stories from those who have stumbled upon their dream home and quickly realized that they needed to get their existing home ready to sell. In a moment, all those home improvement projects that were “backburnered” over the years are suddenly glaring at you.
Chaos ensues. Time and money are frantically expended to get the house ready for pictures, showings, and everything else a buyer wants to see when they walk in the home.
Endeavoring to quickly transform years of unpreparedness into a state that elicits the maximum dollar is daunting and far from any strategy worth replicating.
The sale of your business is no different. Don’t bring undue stress and anxiety by waiting until the last minute to get your house in order to allow a buyer or investor to walk in and see the value.
If you’re not at the stage of seeking a transaction, you might be wondering how to get your business ready for a sale in advance. The good news is there are steps to take for transaction readiness.
Here are five steps that every business can take for transaction readiness:
1. Grab your last five years of internal financials. Tie/reconcile them to your audited or reviewed financials.
2. Spread three years worth of financials (income statement, balance sheet and cash flow) in a monthly format and put it in an “investment banker” friendly receipt format. Color code it, don’t mix input cells with output cells. Make sure all three financial statements align. Clearly articulate your growth in Revenue and EBITDA
3. Build out an LTM (Last Twelve Months) P&L and update on a monthly basis.
4. Make an initial stab of add-backs to that LTM EBITDA (e.g. one-time expenses, excessive owner compensation, start-up expenses etc.) so that you clearly know where you stand from an LTM EBITDA perspective when that next buyer phone call comes your way.
5. Build out an initial 12-36 month financial plan that clearly demonstrates your growth story. Where you are headed, how you will get there, etc. The more you can highlight within that plan what is already contracted, the better.
Time kills all deals. If you cannot quickly demonstrate your company’s value, you will likely miss out on some good opportunities. If you’ve had transaction readiness on your back burner, let this be the impetus to switch gears. Don’t let it happen to you on the sale of your business.
Your good thing may be around the corner. Are you ready for it? Don’t let your next potential buyer find you scrambling. Get ready for the sale of your business before it’s showtime.