“What will make a buyer want to purchase my company?” This is a question many sellers want to know. Working with a business broker is an excellent way to help answer this question. To make their businesses more attractive to buyers, sellers should give particular attention to these three areas.

Area #1 – Quality of Earnings

Many accountants can be rather aggressive when it comes to adding back one-time or non-recurring expenses. This can cause headaches for sellers. Here are a few examples of non-recurring expenses:

  • legal fees involving a lawsuit
  • a lawsuit
  • a building undergoing foundation repairs.

Sellers will want to emphasize that a non-recurring expense is a one-time expense that will not recur. In fact, this type of expense is not a drain on the actual real earnings of a company. Every business has some level of non-recurring expenses every year. However, these add-backs can complicate a deal if an account is not allowing for extraordinary expenses that occur almost every year. Add-backs can inflate the earnings and fail to reflect the real earning power of the business.

Area #2 – Sustainability of Earnings

Any new owner will want to see that the business they are buying will have sustainable earnings after the purchase. No one wants to buy a business only to see it fail a short time later due to a lack of earnings. A buyer does not want to buy a business that is at the height of its earnings or a business whose earnings are the result of a one-time contract. Sellers can expect that a buyer will carefully examine whether a business will grow at the same rate, or faster rate than it has in the past.

Area #3 – Information

Buyers will want to verify that all information provided is accurate. Sellers should expect buyers to evaluate their business carefully to ensure that there are no skeletons in the closet. You can be certain that serious buyers will verify all the information you provide. Whether its potential product returns, potential litigation issues, or a range of other potential issues.

You can go a long way towards helping ensure that the deal is final by putting yourself in the shoes of a prospective buyer. EBIT Associates can help you anticipate what a buyer will want to see well in advance. Contact us today to help get you started down the right path.

 

AUTHOR: Kathy McLaughlin
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