The Importance of Base Year Projections when Selling Your Company

By Generational Equity

11/21/2017

OK, so you’ve made the difficult decision to sell your company. You have spent the last few years getting it buyer ready and have reached the point where you are emotionally prepared to move on.

So what’s the next step? How do you get started? I recommend that before you do anything, you attend a Generational Equity exit planning conference. We hold these throughout North America and they are highly educational and designed to get you up to speed in a few hours on the key steps of how and when to exit your business for maximum value. You can learn more by using this link: The Generational Equity M&A conference agenda.

Although you will learn a tremendous amount of information at the conference, and all of it important, perhaps the most important is this:

Do NOT take your eyes off your primary job – keeping the company on track to reach its base year forecast.

The base year, which is the current fiscal year you are in while negotiating with buyers, forms the starting point for your five-year pro forma. So if the base year is off, it affects the entire forecast which ultimately could impact your company value and deal structure.

Further Reading – Five-Year Pro-Forma: A Key Step in How to Value a Company

As we counsel all our clients, when selling your business it is far better to conservatively forecast your base year and be surpassing it while negotiating a deal structure with buyers than to be too aggressive when creating it and be trending downward as you enter due diligence.

Buyers will repeatedly ask you as you get closer to the finalizing the deal to prove where your numbers are trending in relation to your year-end estimates. If they are falling short, and you can explain why and how the company will recover (especially if you are in an industry that generates a significant amount of revenue and profits in the fourth quarter), great.

However, if you can’t do so, be prepared to have the buyer come back to you with revised business valuation estimates and/or terms and conditions that may require you to stay with the company for an extended time, possibly longer than you were hoping.

Avoid that scenario and create an estimated year end that will be a reality, not a dream or a hope. Trust us, it will be far better for you to be beating your base year than falling behind.

If you would like to learn more about the importance of accurate forecasting when planning for your M&A event, attend a Generational Equity exit planning conference. As mentioned above, these highly educational events only require a few hours of your time, but will reap the rewards of an assured financial legacy. Don’t just take my word for it: listen to a few of our clients’ reviews of what they experienced at one of our conferences:

• What I Learned from Generational Equity Helped Me Become a Better CEO
• The Tremendous Benefits of Attending the Generational Equity Conference
• Some Tangible Benefits of the Generational Equity Educational Process

Please contact us if you would like more information about our conferences and how they will help you sell your company for the optimal value. And no matter what, as you begin to negotiate with buyers, be sure you are presenting realistic and achievable numbers.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.