As discussed in last month's review of endgame scenarios for printing companies, a well-managed, profitable business stands the best chance of enjoying the most desirable outcome - sale as a going concern. But, say Tom Williams and Jim Russell of New Direction Partners (NDP), bringing it about takes careful planning from the moment the owner decides that the time to consider the sale of the business has arrived. To be ready for the kind of due diligence that an astute buyer will carry out, they recommend undertaking a thorough review of finances, personnel, and facilities in long-range preparation for a sale.

Credibility and Clarity Count

The first thing to have on hand for prospective buyers, says Williams, is a reviewed financial statement prepared by an accountant. A buyer won't have "100% faith in the numbers," he says, if they're presented without the validation of an audit. And, since nothing is examined more closely in a sale than the seller's balance sheet, clarity is everything. "Clean up the details of the balance sheet," Williams says. "Make it easily explainable and understandable to the buyer."

He recommends settling receivables as a first step toward getting the financial house in order. That goes especially for invoices more than 90 days old: "Write them off if you can't collect them," Williams says.

Owners shouldn't overlook housekeeping as part of the balance sheet cleanup. Russell recommends getting rid of miscellaneous stocks of paper that have been carried on the balance sheet as inventory. "If it's just sitting there, throw it out, or donate it," he says. "Write off your entire obsolete inventory." Russell also advises against buying or signing long-term leases for capital equipment or real estate while a sale is being planned.

Ending the Lending

Williams and Russell agree that all salaries - including those of compensated but non-active family members - should be scrutinized in the interest of making the sale as profitable as it can be. It's also important to properly account for a practice that's common among privately held businesses: loans to shareholders that show up as receivable assets on the balance sheet.

These loans should be repaid prior to marketing the company, says Williams, with the cash received paid in as equity in the form of additional paid-in capital (as opposed to simply putting the proceeds back in as cash). Russell says that outstanding loans of this kind shouldn't be on the balance sheet of a company whose owner expects financial negotiations to go smoothly. When a buyer spots uncollected loans, their value will be deducted from the selling price.

Williams says that for the sake of a straightforward balance sheet, it's also advisable to "maintain some availability on your credit line." He explains that while there's no harm in showing a reasonable outstanding balance, a buyer might see a maxed-out line of credit as a warning sign of cash flow problems.

Is There A "Second Layer of Management"?

A written business plan with a two-year time frame marks a company as well managed and lets the buyer know that there's a vision driving day-to-day operations. That lends authority to the seller's statements about where the business is headed, Russell says.

Succession planning, Williams and Russell agree, is a key but often overlooked aspect of preparation for sale. They say it's essential to be ready with an answer to the question, "Who'll step into your shoes?" so that the buyer can be assured of having a full management team in place.

Williams says that if a company is family-owned, it should have a succession plan whether it is for sale or not. One issue to settle is the intent of younger members of the family. Do they mean to stay on as the next generation of management, or do they have other life plans? Buyers usually want to know, Williams says, that there's "a second layer of management" below C-level that can step up and take charge when the time comes.

Closely held businesses with multiple partners also can avoid confusion by involving everyone who holds a substantial share of ownership - 10% or more - in planning and negotiating the sale. Even those who are not active in the business should be consulted, Russell says, to preclude objections and obstructions once negotiations with the buyer start.

Securing the Sales Staff

Another key group of people to have on the same page is the sales staff. There should be a plan, Williams says, for retaining the company's top producers so that they aren't tempted to jump ship when the sale is announced. On the other hand, a pending sale should be the moment of truth for reps whose weak performance justifies a decision to let them go.

Since personnel records are something else that an astute buyer might want to see, now is the time to make sure that they're up to date and that they include an employee manual. If the company has been experiencing performance-related issues with any member of the staff, these should be well documented.

If the property the plant occupies is to be part of the deal, says Williams, it's vital to assure that it can be conveyed to the buyer without any environmental complications such as leakage from underground storage tanks. The way to head off this kind of deal-killing embarrassment is to conduct an environmental audit of the grounds and proactively correct any problems that may exist - before they come back to haunt the negotiations.

Who Belongs in the Loop?

Russell, an entrepreneur who sold a printing company he owned in Detroit, knows from experience how important confidentiality can be to the successful closing of a sale. He recommends limiting knowledge of the owner's intentions to a small group of people - perhaps two or three - who can be counted on to help bring about the deal while they keep its existence a secret.

It goes without saying that the professionals who will be called upon to structure and execute the sale - lawyer, accountants, and investment bankers - should be chosen with care. Here again, Russell's experience as an owner has taught him that they must not only be people whom the seller can trust, but advisers who fully understand what the seller wants to accomplish. Actions taken by attorneys or accountants based on misinterpretation or ignorance of the owner's intentions "can kill the deal," Russell says.

Both partners note that while making some of the decisions related to a sale may be painful, deferring them will hurt worse. As Williams puts it, "Take the pain now, or take the pain in your pocketbook when you sell the company." On the other hand, says Russell, doing what must be done now will pay off handsomely on the day the deal is finalized.