Bridging the Way BayState Business Brokers blog

Advisors: Start Sooner in Helping Your Clients Prepare to Sell Their Business

by | Jun 14, 2024

BayState Business Brokers was proud to sponsor the Exit Planning Exchange (XPX) Summit in Boston recently and I was honored to be a panel member discussing how to transition a family business. 

The focus of the recent summit was on how business advisors can help their clients prepare to sell their business. Preparing to sell a business is a significant undertaking and for most business owners, this is a once in a lifetime event.

As a financial planner, wealth manager, CPA, business attorney or other trusted advisor, your client is going to rely on you for advice and guidance. And for most business owners, they are not going to start soon enough in preparing for a sale. This is where you can really be effective in helping them, so they reap the rewards of all their years of hard work.

The Opportunity to Drive Value 

As I reflected in the XPX Summit, it was clear to me that we (collective we) have a real opportunity to educate clients about the importance of starting earlier to prepare for selling one’s business. The earlier your client starts preparing for a sale, the higher the likelihood they are going to maximize the value of their business. 

So how do you, as a trusted advisor, get the planning process started sooner?

By sooner, I am thinking in terms of years. Many of the key drivers of business value take years to plan for and fully implement. This blog speaks to driving value while this other article speaks to the KPIs that a business owner should be measuring in advance of selling so they can readily report to prospective buyers. Both articles present action items for accountants and other advisors to incorporate into a plan well in advance of a sale. 

As you meet with your clients annually as part of tax planning or an annual financial review, I suggest you incorporate into the agenda discussions focused on their business and reviewing goals, progress against strategic initiatives, and risks and threats. Incorporate into these high-level discussions specific timeframes as you discuss investments and retirement plans. Such big picture view discussions are the context for drilling down into the specifics of deriving value out of the business. 

As we all know, the pandemic had a dramatic impact on changing the retirement timeline for many baby boomers. Retirement timelines accelerated and many businesses were sold. 

As business brokers, we welcome the opportunity to join you in discussions with your clients on plans to sell the business. We can share insight into general timelines and highlight the key areas to work on in advance to drive value in the business.  Like most important milestones in our life, the sooner you start planning, the better off you will be. 

We are finding that business owners are not planning far enough in advance to make changes and investments in the business that will reward them at the time of sale. 

As advisors to business owners, you really can help your clients plan well in advance to change this trend and avoid the issues raised at the time of sale. 

A Big Picture View

Part of the pattern we are seeing is that once a business owner (seller) has made the decision to sell the business, they focus on the transaction and take their eye off the big picture. 

This change in mindset often results in poor business decisions including avoidance of relatively low-cost investments in the short term that could have contributed to driving the value of their business. Refer to this article on keeping your foot on the gas

The biggest gap we are seeing is for companies with a sale price between $5-15M, which attract individual, private equity and strategic buyers. Most companies in this size range don’t have sophisticated accounting practices and/or an internal CFO or controller. But the financial diligence that a buyer will want to perform is more rigorous and may be difficult for these clients to manage, or their companies may not pass diligence if their books are not in good order. If the owners have not effectively planned for the sale by having a strong accounting team involved early, they could be caught being in a less advantageous position to negotiate and even leave money on the table regarding the value of their company.  

A few recent examples highlight how you as advisors could counsel a client to make investments or changes that would have closed this gap now apparent at the time of sale, when it is too late.

One example is financials and being able to present a complete financial package easily and readily to prospective buyers. Buyers expect to review financial reports on the business and in a recent situation, the owner had not invested in upgrading their accounting systems nor did they want to spend any short-term money having a fractional CFO prepare a complete financial package for prospective buyers. This resulted in some prospective buyers walking away from the deal and others negotiating on both terms and price. 

This scenario would have been quite different had the importance of systems and processes including financials been discussed earlier in the process as essential to the value of the business.  Advice on accounting systems upgrades or investing in fractional finance expertise would have been options to substantiate the value of the business as a core operational capability. 

Another example of taking a big picture view and planning relates to accounting and use of cash basis vs. accrual accounting. Given the specifics of a business’ operating model, the business owner had been accounting on a cash basis. In planning for a sale, it would have been beneficial to change to accrual accounting which better reflected the operations of the business and accounting principles well in advance of the sale. 

We also frequently see companies who are C corporations engage in a sale process and they should have been switched to an S Corp in advance to prepare for this and avoid double taxation. 

Here to Help

For your clients, deciding to sell a business is a big decision and an emotional one. For most, this process is daunting and one that they will only go through once in their lifetime. Don’t wait for them to turn to you for advice and guidance. Ask and be curious about their timeframe. If the timeline is within five years, let’s connect so we can be helpful in getting them prepared. 

We are here to help as this is a team effort. We welcome the opportunity to meet with you and your client to answer questions, listen and discuss some of the most important drivers in value. The sooner we are all at the table, the better to help your client. 

We also realize that the timing of the decision is not always chosen; something else happens that necessitates a change in the plan. That is when we can regroup, and all do our best given the circumstances to maximize the return on their years of hard work. 

If you have a client who is starting to define a timeline for selling their business, let us know how we can support you in your planning discussions. 

Together, let’s help them achieve their goals.

Contact us.



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