We are often asked, “what changes can I make to my business to make it more valuable before selling?” There are a lot of ways to do this, given sufficient time. We frequently talk about these in Deal Notes®, but today we’re covering what you shouldn’t change just before you sell your business.
The short answer is don’t change anything major that will meaningfully alter your operations or decrease visibility into your near-term future revenue or expenses. A couple of examples are substantially expanding operations or implementing a full upgrade of your ERP system.
In a major facility expansion, buyers will usually not accept your cost and timing estimates but will assume you have been too optimistic and will adjust your projections downward. Buyers will often say, “come back to us after the project has been completed, and then we’ll revisit these discussions”.
In almost every client ERP system upgrade/implementation that we’ve seen, there have been delays, cost overruns, and disruptions to operations and management reporting, due to integration problems. These can result in substantial increases in costs and declines in revenue for the seller. And while these may be temporary, buyers are almost never willing to ignore negative financial results right before closing an acquisition.
These are just two examples of a long list of major changes that should not be attempted just prior to selling. Our advice: if there are major changes that could dramatically enhance the value of your business, start them far enough in advance that they will be fully implemented/completed 1 – 2 years prior to when you would want to start a sale process.
Have a great day,
Ryan Kirby
Junior Partner
