COMMENTARY: Strong Financials and Selling Your Business

Smart credit and collection processes can make your company more attractive to potential owners.

By Scott Simpson

The Real Issues article (p. 32 January LBM Journal) titled “Planning Your Company’s Future,” highlighted the difficulty many dealers face in developing a comprehensive succession plan, and the unease it creates for all employees. Transitioning ownership is a major undertaking, and you want to make sure it’s a success for everyone. Putting your financials in order now can help ensure that you’ll have a more profitable sale and easier change of ownership.

Get started by looking at three key aspects of the transaction, their importance, and how you can strengthen your company in each area.

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Reducing Risk and Uncertainty

The Great Recession created huge bad debts for most dealers. New buyers will want to be assured that the credit quality of the current customer base is strong. Otherwise, they may look to the bad debt historical data from the Great Recession as their expectation of how bad it could get in the next recession and discount their willingness to pay.

If you haven’t yet, now is the time to create a thorough credit assessment of your customer portfolio. Make sure your credit staff is using multiple business and consumer credit reports to evaluate customers’ credit quality and likelihood of default. Armed with this information, you can clearly represent the value of your customer base and reduce risk and uncertainty for prospective buyers.

Your company’s cash flow will also be a priority for new leadership—the buyers need to understand how much cash they’ll need to support operations after the sale. If your DSO (Days Sales Outstanding) is 45-plus, then a potential buyer may need to tap his or her bank for operating capital—adding risk to the equation. Making improvements to your credit management and collections now, such as working to turn all customers into on-time payers, can improve your position when it comes time to sell.

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