Page 10 - NBIZ Magazine February 2024

If one's company does not have financial statements ready To calculate and track the company’s adjusted
for a buyer to review—and this is common—then one must EBITDA, one needs people on the team who
temporarily pause the discussion with this inquirer until the are familiar with the exercise and understand
company reports have been properly reviewed and recast. how potential buyers view these issues. If the
Explain to the potential buyer, “You contacted me, and my company has a chief financial officer (internally
company financial records are not yet ready for a buyer. We or outsourced) that has guided companies of the
both know that this common when a company is not being same size through acquisitions, then he or she can
marketed for sale, which mine is not. My team and I will likely do this work. If nobody on the current team
get our reports ready, and then, I will get back to you.” Be has this experience, then read Part 3 of this article
prepared for the potential buyer to press the company to series (in the April issue) where we will discuss
keep talking and even meet with them, because they want advisors who can help with these calculations
to keep the owner close and extract more information from before one sells.
him/her. In most cases it will be best to resist having any
more conversations until one’s documents are ready. If the STEP 3: Start doing the homework. If one chooses
potential buyer is legitimate and their interest in the compa- to go forward with this potential buyer, the next
ny is genuine, usually they will wait a few weeks while the step will be a bigger one than many business
owner gets the company’s financial records in order. owners fully appreciate. Up to this point, one has
likely had a brief conversation or two with the
potential buyer, and have not shared a lot of details
about the company and one’s personal situation and
goals. (Hopefully one has not.) However, once one
signs the NDA and submits the company’s financial
data, one’s conversations with this potential buyer
will rapidly expand and dig into greater detail
about the company and its owners. What started
as a harmless little inquiry can quickly become a
time burden and confidentiality risk. The potential
buyer often will bring more people from its team
into the conversations and will pivot into asking for
more information and documents. They will also
want to meet and may ask to visit one’s facilities—a
scary proposition if employees or customers learn
what you are considering. The entire time, the
owner(s) will be sharing detailed information with a
company that either is a competitor or might be one
in the future if they don’t acquire one’s company
A company’s EBITDA is not always and later buy another.
understated. Other business decisions A potential buyer likely has acquired about
can cause EBITDA to be overstated. many companies and possesses a team of
For example, if one is paying yourself a experienced staff and expert advisors. In contrast,
if like most owners this may be the one company
below-market salary, perhaps to free one ever sells. One cannot take the risk of going
up cash to reinvest into the company or forward without doing one’s homework to be
because the owner takes the lion’s share prepared. One must learn what it takes to sell
of his/her income in the form of profit a company, evaluate if one is truly ready, and
assemble one’s own team to guide the company and
distributions, then the company’s initial its owner(s) through the process. N
EBITDA may be higher than it otherwise
would be if he/she was paying oneself Patrick Ungashick is the CEO and founder of NAVIX
Consultants. He is nationally recognized as the
market-rate wages. Many issues can authority on exit planning for business owners.
impact EBITDA positively or negatively, Patrick is also the author of two books to help
including accounting methods, employee owners get ready for their exit: Dance in the End
Zone, and the award-winning A Tale of Two
benefits programs, and product Owners. Patrick can be reached via email at
development costs. pungashick@navixconsultants.com.

10 NBIZ ■ FEBRUARY 2024