August 20, 2018
By Allan Peiser
Perhaps your manufacturing or distribution company has achieved its growth milestones over the years and now your exit strategy calls for selling either a portion or all of your business. Or, you may be seeking to sell a portion of your business to achieve greater profitability. In either case, you will need to understand sell-side due diligence—what is involved and why it so important in the sales process.
As the owner of a closely held, midsize manufacturing business preparing for a sale, you will want to consider a number of financial, technology, operational and human resource matters. Additionally, you’ll need to consider existing market conditions to time your sale, and accurately value your manufacturing company to determine the right pricing.
Selling a business can be a complex process, taking you and other key personnel away from the daily operations of your business. You want to maximize the return on everything you have invested in your business, so it’s important to understand what the process includes and what the potential buyer needs. For example, prospective buyers will want to know:
- Current customer and vendor relationships
- Financial and tax records
- Employee salary and benefits records
- Analysis of prior years’ projections and support for the accuracy of current year projections
- Cash flow (historical and projected) and the identification of past capital expenditures and those projected (e.g., hardware and software)
- Potential tax exposure regarding sales tax nexus (income and sales)
- Documentation of transfer pricing policies
- Quality of earnings analysis
- Year-over-year sales trend analysis
- Contractual commitments (length, financial terms)
- Key vendor relationships (and third parties who market or distribute good and services)
By working closely with financial experts, you will be able to provide all the requested documentation to make the sale process go smoothly.
Further, you can avoid surprises that hold up the sale or make the buyer walk away from the transaction. You’ll be able to reduce the amount of time between issuing your letter of intent to sell and final closing. Finally, by providing transparency and detailed information to prospects, you can increase the number of interested parties, which can result in getting a higher price for your business.
In this blog, we have provided general information regarding sell-side due diligence. If you are considering a sale now or in the future, our Manufacturing and Distribution Services Group will work closely with you to cover all due diligence details that will prepare you for the sales process. For more information, please contact the Manufacturing and Distribution Group or Allan Peiser, CPA at 214-635-2503 or email Allan.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.