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12 Tips on How to Increase Company Value Before Selling

When selling a company, the seller would naturally try to increase the business’s value and reduce post-closing risks or losses. These should be accomplished, of course, without causing any disruption in the present operations. Before putting the company up for sale, the seller must first identify areas of concern. This way the seller will be well-prepared during the tackling letters of intent, negotiating the terms of the sale and addressing the issues that may arise during the sales transaction. If the seller failed address pre-planning considerations, it is very likely that the outcome will be unsuccessful.

In order to achieve a successful result, sellers should consider these helpful tips:

1.    Corporate Records: sellers must anticipate that the buyer would be interested in the company’s corporate records. Due diligence disclosures that are anticipated must be updated and reviewed. These records should include key corporate, financial, accounting and operational records as well as all legal documents. 

2.    Company Growth: sellers must be able to show the buyer the historical as well as projected company growth, both for short-term and long-term. This can be done by preparing a financial model that covers acquisition opportunities displayed on a line-time basis.

3.    Company Performance: sellers must be prepared in defending the financial performance of the company, explaining in detail any fluctuations in profit, operational expenses, selling costs and other overhead expenses including salaries and material.

4.    Return on Investment: sellers must help the buyer confirm its company valuation by showing detailed reports on return on investments for every item classified as capital expenditure, together with an anticipated time frame.

5.    Management Team: if the buyer is considering making an investment in the existing management team, sellers must make sure that they will highlight the manager’s experience and contribution to the company. Also, providing the buyer with a detailed assessment of the low-level managers who can be assets should also be done.

6.    Run the Company: although the sales process will consume much of the senior managers’ time and efforts, operations must never be disrupted. The senior management should not forget to still meet the business goals and targets during this period.

7.    Non-Disclosure/Confidentiality Agreements: sellers must not forget to enter into a non-disclosure and confidentiality agreement with all potential buyers in order to protect proprietary company information.

8.    Letter of Intent: sellers should negotiate the terms of the sales and make sure that they are reflected in the Letter of Intent. This should include ancillary provisions, material economic terms, payment arrangements, limitations or restrictions on the indemnification obligations, extent and nature of warranties and representations and the period for the buyer’s right to perform. By preparing a detailed Letter of Intent, sellers and buyers can be assured that they both agree on important business points, respective obligations and legal terms before finalizing sales documents. This will help them avoid delays and additional sales transaction costs.

9.    Employee Incentives: the awareness of an impending sale might to result to the employees being anxious. In order to avoid any negative effects on day-to-day operations and potential harm to the planned sales transaction, it is important that sellers give their employees incentives. These incentives can be in the form of bonuses, benefits and even equity participation.

10.    Selection of Investment Banker: the services provided by an experienced investment banker might come in handy for sellers. These services include identifying financial and strategic buyers, gathering of realistic information pertaining to valuation of the company and obtaining data on market intelligence. Sellers should consider factors such as experience, reputation and professionalism when looking for an investment banker.

11.    Accounting, Financial and Tax Advisors: sellers should have accounting and tax advisors that will review and analyze all considerations during the sales transactions in order to foresee possible problems and eliminate them as early as possible.

12.    Sarbanes-Oxley Act: sellers must seek counsel who is an expert in the Sarbanes-Oxley Act. Also known as the Public Company Accounting Reform and Investor Protection Act of 2002, this legislation covers requirements that may be important to the acquisition of the company. If the seller targets compliancy to this Act, company valuation will improve.

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