Essential CFO tips for business exits: 6 things a good CFO should be guiding when business owners seek an exit
Shyamal Parikh
by Shyamal Parikh
Originally published by: Smart Business Dealmakers
Selling a business can be a complex and emotionally charged process for any business owner. Whether they are retiring, pursuing a new venture, or simply ready to move on, properly preparing a business for sale is crucial to maximising its value and ensuring a smooth transition.
Introducing a seasoned chief financial officer (CFO) into this process as early as possible, ideally 5-7 years prior to the transaction, is pivotal to guide and position the company for a successful sale. Here are six things my partners and I at SeatonHill Partners, a CFO services firm, advise business owners to do in preparation for a sale.
Financial clean-up
Before putting the business on the market, it's essential to ensure company financial records are accurate, up to date, and well-organised. A CFO should work with your accounting team to clean up any discrepancies, reconcile accounts, and ensure compliance with relevant accounting standards. We often run into settings where smaller businesses do not have a strategic CFO, only people who manage day-to-day tasks without having the skills to meet the acquirer’s needs.
Financial projections
A CFO should prepare detailed financial projections that demonstrate the company's growth potential and future earning capacity. These projections should be realistic and based on thorough market analysis and historical performance. They should also highlight potential areas for growth and expansion that would be attractive to a private equity firm or other buyer. Additionally, identifying key value drivers such as a strong customer base, proprietary technology, intellectual property, or recurring revenue streams will help support financial projections. Putting these projections together, along with a presentation for growth potential, is part of the storytelling that will drive up the sale price for the owner. Having a “been there, done that” CFO can be instrumental in this process.
Cost optimisation
Hopefully a company does not wait to sell before realising a review of the company's cost structure would be beneficial. A strategically-minded CFO will look to identify opportunities for optimization. This could involve renegotiating contracts with suppliers, streamlining operations, or reducing unnecessary overhead expenses to improve profitability.
Risk management
A CFO can help dive deep into evaluating and mitigating any potential risks that could deter prospective buyers or impact the sale price. This may involve addressing legal or regulatory compliance issues, resolving outstanding litigation, or securing key contracts and agreements. Furthermore, the CFO should work together with the legal and advisory team experienced in mergers and acquisitions. This team can guide the sale process, navigate complex negotiations, draft and review contracts, and provide valuable decision support backed by financial models.
Tax planning
Work closely with tax advisors to develop a tax-efficient structure for the sale that minimises the tax burden on both the business owner and the buyer. Consider strategies such as asset sales, stock sales, or structuring earn-out agreements to optimise tax outcomes.
Financial structure and cash management
A strategic CFO will work with the acquiring company to project the business’s cash requirements and optimise its financing structure – debt vs. equity financing. For example, the CFO will create relationships with various financing entities to ensure the business has options and flexibility in its financing.
By following these guidelines and working closely with a CFO, business owners can position their companies for a successful sale and maximise value for all stakeholders involved. For companies without an experienced CFO, a CFO services firm like SeatonHill Partners can be a valuable asset to help prepare a company for sale, and maximise the potential sale price for the business owner.
Preparation is key, so start early, enlist the right expertise, and navigate the sale process with confidence and diligence.
GCG member firm SeatonHill PartnersFort Worth, TX, USAT: +1 262 215 0945
Advisory
SeatonHill provides financial leadership with a strategic and operational focus to improve and propel a business. Our elite CFO Partners go beyond the numbers to guide management through complex financial problems in M&A, T&R, growth, and other business needs to mitigate risk and achieve results.
Shyamal Parikh is a financial executive with a proven track record in organisations from start-up to USD 16B in revenue, including private equity, and private and publicly held companies. Shyamal also has extensive international experience in Asia and Europe. Contact Shyamal.
