If you are contemplating exiting your business, or if a sale is imminent, engaging a CFO can increase your multiple and add substantially to your net proceeds.
Balance Sheet Management – A working capital peg is used to adjust the purchase price based on changes in the company’s working capital at the time of closing. The working capital peg is always the final part of price negotiation and is based on a historical period of 3 to 18 months. Engaging a CFO early to manage working capital provides a narrower range of negotiation, allowing both the buyer and seller to predict net proceeds more accurately.
Recasting – As an owner, you have the ability to manage business transactions to coincide with your personal interests, and in many cases, legally reduce your tax bill. As a seller, you want to demonstrate the highest possible profitability of your company. Recasting your financials is the accepted way to bridge this gap. Recasting involves removing discretionary and one-time expenses from the income statement to show what the financials would look like if the buyer owned the company. CFOs identify and substantiate these add-backs to create pro-forma statements.
Financial Projections – One of the most important stories you can tell as you market your company is the potential for growth. CFOs provide accurate, realistic, and supportable projected financial statements to support the company’s growth potential, leading to a higher valuation.
Organization, Records Management – As the deal proceeds, buyers will want to look at financial records and other important documents. A well-organized and complete data room can accelerate buyer confidence in the deal and may lead to a higher valuation. A CFO will review and organize the documentation to determine if there are any potential risks or complications and can work to address them early in the process.
Due Diligence – Sellers will likely engage their own accountants to conduct a detailed analysis and assessment of a company’s financial statements and accounting practices. The process often involves meeting with key finance and leadership personnel, reviewing records and documentation, and interviewing relevant stakeholders to gain a deeper understanding of the company’s financial operations. A CFO will anticipate questions to ensure that staff are well prepared and meetings are run efficiently, which also accelerates buyer confidence.
Negotiations – Actively involving a CFO in negotiations allows them to provide insights and guidance to the deal team. They can help structure deal terms, evaluate various scenarios, and assess the financial and business implications of different options. CFO involvement in negotiation also ensures that any post-close changes have been anticipated.
Risk Management – A CFO can identify and mitigate the potential risks associated with the sale. By assessing and reducing these risks prior to, or early in, the sale process the CFO creates a more attractive opportunity for potential buyers.
Employee Retention – More and more frequently, buyers are purchasing not only the business, but the talent within the business. Unless they are familiar with mergers and acquisitions, leadership frequently underestimates the effort and uncertainty involved in transitions. Bringing in a CFO will help alleviate the burden and lead the organization through change to retain and engage staff.
Overall, a CFO’s financial expertise and strategic insight can significantly contribute to a sale by optimizing financial performance, providing accurate forecasts, managing risks, and facilitating effective communication with potential buyers.
