“Readiness Index”

How do you and your Company score on each of these criteria?

Valuation Expectations

Has a business valuation been prepared, to give the owner a reasonable idea of the value of the business?

Personal Expectations

Is the sale of the business the exclusive source of retirement income? Has the business owner done any financial planning, so that there are no “surprises” about how much income the proceeds will generate? The tax issues related to selling the assets of a corporation, partnership, or limited liability company can vary dramatically. Tax planning must be done well in advance to maximize the net proceeds from the sale transaction.

Payment Considerations

Does the seller expect an “all cash” transaction? Only about 25% of business sale transactions are “all cash.” Many transactions include some form of holdback for contingencies, seller financing, or possibly an earnout to achieve maximum value.

Process Documentation

Does the business have systems and procedures in place? A business with documented systems and procedures commands a higher price than an operation where things are “just done” a certain way.

Financial Records

What type of financial system is in place? The buyer wants to be able to confirm revenue and expenses, and the records need to stand up in due diligence. Poor financials lead to uncertainty and a lower price.

Management Team

How much of the revenue and profits of the business are dependent upon the owner? After closing, the buyer wants to know that existing management is capable of continuing the business. Depth and breadth of management is key to obtaining a value for the goodwill of the business.

Branding Issues – Goodwill

Viking Fence or Joe’s Plumbing? How many of Joe’s customers will continue after Joe sells and retires? Developing a brand separate and apart from the owner is key to maximizing value.

Customer Diversification

Generally, any customer representing more than 20% of sales will be a significant value detractor.

Employee Issues

What type of benefits and employee retention programs are in place? How stable is the workforce?

Regulation and Compliance Issues

Are there any pending issues or licenses with state or local agencies that will cause change of ownership to be difficult?