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Quality of Earnings

If you are the owner of middle market aerospace and defense company, making the decision to sell some day is not trivial, from both a personal and company readiness point of view.

To ensure a successful sale of your company, a large amount of planning needs to be done to ensure the result you seek. Among the many business-related functions that need to be considered are the quality of your financial statements, regulatory compliance, potential environmental concerns, cyber security protection, outstanding legal matters, contractual compliance, personnel matters, supply chain stability, and much more. Potential buyers will perform rigorous due diligence before they will purchase your business and far too often a buyer will sign a letter of intent at one price and find legitimate problems in due diligence that will result in a lower price for the seller.

Among the most important areas for buyer due diligence is the quality of your financial statements, often referred to as the quality of earnings or “QofE”. Ideally your financial statements should be Audited or at a minimum Reviewed by a well-respected accounting firm. It can take 2-3 years of preparation for companies to transition to Audited financial statements, if they have never been done in the past. We will be addressing those issues in an upcoming deal note®.

In addition to engagement a well-respected accounting firm to help you prepare for a sale 2-3 years in advance, we also encourage owners to talk with legal counsel (with expertise in M&A) and M&A bankers (with experience selling companies in the A&D industry) at least 2-3 years in advance, to hear their suggestions for your preparations. Like so many other aspects of your business, planning and preparation and keys to success. Whether its moving to a new facility or acquiring a new line of milling machines, success comes from thoughtful planning. Selling your business in many ways is similar to many other aspects of running your business: preparation and planning generate better results. If you are thinking of selling someday, don’t wait until ‘someday’ to start planning. Start planning years in advance.

Have a great rest of day!

Bruce Andrews
Managing Director, Defense