Keys to prepare your business for a capital raise or sale

As a private equity investor that buys and sells companies all the time, I have the good fortune of seeing both sides of this discussion. There are numerous items of importance, but I am going to focus on three main themes — financial statements, strategic planning and team.

Financial statements
Preparing high-quality financial statements is a critical piece to selling your business or taking on a capital partner. If your financial statements are poor, you send the signal that you may not know your business.

And from a value perspective, if you miss something in the favor of the buyer, they will certainly find it and use it to reduce the value of the business; however, if an error found increases the value of the business, you won’t hear about it until after close, if ever.

Having good financials and financial practices is a strong indication to a buyer or capital partner that you have a well-run business and can even affect value positively. Accurate numbers allow you the ability to truly understand the value of your business.

Strategic planning
If you are raising capital, you are trying to get a potential capital provider excited about the investment opportunity. If you are selling, you are trying to show the future owner that you have left them some upside in value to justify the purchase price you are asking.

The process of developing a good strategic plan will help you tell your story and affect how it is received by a potential buyer. It will force you to look for facts or data that can support the story you are trying to tell to prospective buyers or partners.

If the data does not support it, then you know that you need to make adjustments. It will also help to ensure that everyone in your organization is on the same page. A real detractor to a buyer or capital partner is not having your senior management team on the same page about the direction of the business and vision for the future.

This team is different than your senior management team. This team includes outside specialists that take part in these very important events each and every day versus most owners, who will only take part in this type of life-changing event once, possibly twice, at best.

These specialists include an attorney (and not just any attorney, but a mergers and acquisitions attorney); an accountant; your controller or CFO; select senior managers; and potentially a financial planner or certified exit planning adviser.

Whether you are raising capital and seeking a new partner or selling your business altogether, some combination of this team is key. Having outside specialists can get expensive, but it can be the difference between a good and bad transaction.

In closing, be prepared by starting as early as you can in the process to maximize your chances of success. And know what success looks like for you and your business.

Jeffrey Kadlic is co-founder and managing partner at Evolution Capital Partners LLC.