Selling a family company for twice the asking price
A family wanted to sell its company. The firm, headquartered in the Southeast, provided security technology such as key cards, gates, and video surveillance to businesses.
The family hired a well-known broker. But the company lingered on the market with no solid offers for two years. The family turned to David Moore & Partners for help.
Moore proposed two engagements. He would work hard to sell the company. But first, he would delve into the financial records to see if there were hidden obstacles to a sale and confirm the offering price was fair.
Sorting through personal and business expenses
Moore immediately spotted a mistake common to small businesses. The family didn’t maintain separate checking accounts for business and personal expenses. They ran their entire life through the business. “When you want sell that company, it’s very difficult to prove what’s a business expense and what’s a personal expense,” Moore says.
Moore needed to obtain a current picture of what the business was actually earning. With colleagues including a CPA and a bookkeeper, he delved into five years’ worth of financials from the company’s management software and bank statements. From his evaluation, he could reconstruct an accurate income statement and balance sheet. The assessment took two months.
The project was worth the wait. Moore got the business under contract to sell in four weeks for about $1 million.
That’s twice the price the family had previously set.
Due diligence yields $500,000 results
The company’s tax returns had shown the business making only $150,000 in net profit. Based on that figure, the initial sales price was $500,000. Moore used to the updated financial statements to prove the company was actually earning $450,000 annually, justifying the higher sales price.
By doing due diligence early in the process to make sure he can sell the business, Moore saves time for himself and the client.
And in this case, he earned them $500,000 more than they were expecting.
