Nervous About Selling Your Company? There Are No Unsellable Businesses

If you’re considering selling your business, you may be anxious about the process, especially if you know your company has shortcomings or issues with bookkeeping. The right M&A advisor or investment banker is critical in these scenarios, since they can prepare you to intelligently market your company to the right buyer.

With the right support, there is no such thing as an unsellable business. Every company can get the right valuation and eventually sell, even if your accounting has been less than ideal.

For many owners, fears about their history of creative accounting and abandonment of GAAP top the list of reasons not to sell. You might think you need to wait two to three years to clean up your accounting. While this gives you the best possible chance, it’s not always necessary.

The right buyer can do some forensic accounting to adjust for lack of discipline. Of course, this will decrease value and increase effort, narrowing your pool of potential buyers. But it doesn’t make your business unsellable. Ultimately, many owners must make a choice: between selling now and outsourcing some of the work to the buyer, or selling later and getting their financials under control now.

A broker or experienced buyer can adjust the books as necessary. For example, if you purchased something last year that produced a major profit hit, this can lead to an add-back such that one-time purchases do not affect profitability. There may also be removal adjustments, such as if you sold during a time when the business was highly impacted during the pandemic. Forensic accounting can similarly adjust for money funneled to family members through the business.

Remember that PE firms and brokers are not the same as IRS agents. They’re not looking to report you. They’re looking for fair valuation. Your tax issues, as well as any other relevant regulatory issues, are up to you to manage, with one important exception: you cannot mislead about cash by misreporting the number of cash sales. Improper cash management can create false beliefs that damage the sale, or even destroy it.

Today’s valuations are largely tied to gross revenues rather than earnings before interest, taxes, depreciation, and amortization (EBITDA), though EBITDA does sometimes factor into valuation. So even with a poor EBITDA or less than ideal accounting, there’s still hope.

The right advisory team makes the difference. If you’re looking to sell, the time to seek help is now.