How Best to Prepare to Go to Market

By / 1 month ago

I used to work for the marketing department of a large building products manufacturer, and the executive in charge had a saying that has always stuck with me. Whether we were preparing the marketing, packaging, messaging, or trade show presence for product rollouts, he’d say, over and over again, “Well-presented, half sold.”

That’s true for product launches, but it’s also true when you are selling your company. The presentation of the company, typically in the form of a deal book (a.k.a. Informational Memorandum and accompanying financial statements and tax returns), is viewed as an indicator of the overall state of the company and its operations.

Just as you would no more respect a salesman who was sloppy in his communications, late to appointments, or who wasn’t dressed properly for a meeting, so too you would hold in suspicion a company going to market with haphazard financial statements or that had paid no real attention to creating the deal book. They should have made it look like a professional brochure.

That said, on a recent call with a prospective client, a question was asked: “What’s the one thing we should do to prepare for a sale of our company?”

“Is it boosting earnings?” Sure, that helps. But it’s not the No. 1 item.

“Is it to ensure leadership continuity?” Essential to have, yes, but not at the top of the list.

“Is it paying off debts?” Debt-free companies are certainly attractive, but when going to market, there’s something even more important. And that’s to get your financial statements in order, so that your balance sheets and profit-and-loss statements are clean and presented in standard formats.

What’s more, you will need these documents for three years, historically, as well as a set for your trailing twelve months (so you are sure to capture good performance even if you are in the middle of a fiscal year), and projections for the rest of the current year, and for the next twelve months.

By presenting these in GAAP accounting formats (general accepted accounting principles), these statements can be easily read, even by someone who is not familiar with the idiosyncrasies of your company. Any one year can be readily compared to other years, and information is readily available for your investment banker, who is brokering the sale of your company, to calculate year-over-year progress, compounded annual growth rates for revenues, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and yearto- date performance, all in multiple categories, including gross profit margins, operating expenses, operating income and, the bottom line earnings. Clean statements also make it easier to argue for, and defend, adjustments to EBITDA for non-recurring expenses that won’t be assumed by the new owner, and which boost the value of your company, sometimes dramatically.

(Additional items you will need to have in “pin clean” presentation mode are your inventory statements—knowing that this will be physically redone just before the deal closes—and a list of other assets, ideally accompanied by good photography of your equipment, and your recent tax returns.)

A “One-Page” Approach

We were recently working with a company we took to market, and the prospective buyer wanted to see a list of assets, to understand, as he put it, “everything that would be ours if we wrote you a check today.”

Impressively, we had it at-the-ready, in a one-page format. And that’s what elicited the following comment from the prospect: “Gosh, it’s nice to see everything on one page.”

Of course, you can’t present every aspect of the company in one-page formats. But the point was well-taken that a distillation of data in a condensed presentation went a long way toward assuring this prospective buyer that A) we knew what the assets were and how much they were worth, and B) that the prospective buyer could trust us to produce, on-demand, summary data and documents that he needed to see when appraising the value of his potential purchase. Plainly stated, it built trust. How do you create these clean documents, in formats even strangers can readily understand?

Work with your accounting firm, and directly with a CPA. If you are doing the books yourself in a system like QuickBooks, you may find that the statements drawn from in-house use of QuickBooks is not going to be adequate. So, invest the money and the time to get an accounting firm to create the genuine articles. Because, “Well-presented, half sold.”

John D. Wagner

John Wagner is a managing director at 1st West Mergers and Acquisitions, which offers a specialty practice in the LBM sector. Learn more at: www.1StWestMA.com. Contact John at: j.wagner@1stWestMA.com.