Thinking about selling your company? Here’s what you need to know, courtesy of Dave Bookbinder, senior director of valuation services at CFGI in Philadelphia and the author of The NEW ROI: Return on Individuals.

Dave Bookbinder

Q: Why is having a handle on your business necessary to ultimately sell it?
DB: Valuation is the present value of future benefits. Buyers want to see opportunity with an existing customer base that’s poised to grow and they want to see that the company is profitable. The owners need to prepare financial statements that make the business look attractive because buyers want to know what they’re buying.

Q: How early should a succession plan be developed?
DB: It depends on the situation, but at some point there will be an exit. It’s a process, more than an event. Start planning at least three to five years before the exit, which gives you a chance to get your ducks lined up. Buyers want to see that the business has been through a process. It also gives you time to put together an advisory team. Get a good accountant and an attorney, not your brother the personal injury lawyer. The more you’re in front of the process, the more opportunities you have to take advantage of it.

Q: Why is it important to start thinking about it sooner rather than later?
DB: A lot of people don’t want to sell because the business is their baby and they don’t know what they would do instead. They miss opportunities to sell or they ride it out until they’re elderly and/or ill, and now there’s no one in the family interested in taking it. At that point, it might not get the valuation it would have otherwise gotten. Owners add the most value to their business by getting in front of it.

Q: If the owner’s child wants to buy it, what’s important to remember about that process?
DB: It’s still all about planning and starting early. You need an advisory team that’s communicating. There are accounting, valuation and legal aspects you must address. You can’t just say, ‘I’m giving my daughter 10% of the company this morning.’ There are tax and ownership implications. They become your partners because they now have equity in the business. Make sure they’re on board.