The value of a company is in the eye of the buyer; therefore, sellers of lower middle market companies should position their businesses to drive the strategic value and attractiveness before a possible sale transaction. Enhancing the value of a company is an ongoing process, and sellers should begin preparing their company for sale 18 to 24 months before marketing their company. The following actions will help start the process:
- Clean up the balance sheet: remove excess cash and securities through dividends; write-off uncollectable accounts receivables and obsolete inventory; sell non-producing assets; eliminate stockholder and employee loans; record all company liabilities, including vacation time and other employee benefits.
- Put “change of control” agreements in place for key employees:the buyer’s perception of value is strongly influenced by the retention of key employees. Incentives in compensation and change of control agreements with key management will help maximize company value.
Position the company for income and opportunity: identify the drivers of value; elevate existing processes; control the expenses; eliminate excessive compensation; negotiate leases that will not hinder a sale; prepare financial projections for the next few years.
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