Preparation For A Sale - Financials and Real Estate
Preparation is an important part of any business pre-sale planning, whether you are selling part or all of your business. To begin, owners and key stakeholders must decide and align on a business strategy. Then, owners must make sure they are prepared for a sale and the challenges that may accompany it. Finally, no matter how well-planned any exit strategy may be, it all comes down to execution.
Carty Davis, a boutique investment bank partner who has completed hundreds of transactions in the multi-unit franchise and restaurant space, writes that preparing for a sale means aligning strategy, getting the financial house in order, and developing a plan for execution.
Here's what he says about the preparation phase:
The first step in preparing for a sale is to sort out the financials and real estate.
Financial reporting and contracts. Running a franchise business is an all-encompassing venture. Owners spend so much time ensuring outstanding customer service and guest satisfaction that some of the legal, accounting, and tax issues can be overlooked. When considering a sale, it is important for the owner to understand and be prepared for the rigor that outside parties (buyers, franchisor, investors, lenders) will put into examining your business.
Integrity in financial reporting is paramount. The most serious mistake an owner can make is having inaccurate financials. Before providing financial records to outside parties, review them for accuracy and completeness. In addition, contracts, credit agreements, and leases also should be reviewed before the process starts. One-time, non-recurring adjustments should be detailed, along with proper supporting documentation. Buyers, investors, and lenders often will also require a detailed quality of earnings report (these are like mini audits and are becoming more standard in franchise transactions). Tax planning is also important, and sellers should be aware of the tax implications of any sale transaction.
Real estate. In some cases, a significant portion of an owner's equity is in the real estate. If you own property, what do you do with it? It is important to carefully consider all options, including the sale-leaseback market. Many buyers prefer to own both the business and underlying real estate and will often pay a premium to control both. However, if you plan to keep your real estate holdings, it is important to engage a competent real estate attorney to draft a marketable lease that provides the owner with flexibility to sell some or all of the properties at a later date.
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