By Mark Ott, CFO Consultant, Next Stage Solutions, Inc. (NSS)
Previously I talked about How to Prepare Your Company for Sale and the need to get your historical financial information in order. While potential buyers are certainly interested in how well your company has performed in the past, they are even more interested in how well you will perform going forward as this is what they are truly buying. While no forecast is guaranteed, nothing will make a potential buyer more nervous than a rosy forecast that doesn’t hang together.
Prepare a Credible Forecast
Many things go into a sound financial forecast but here are a few key things to focus on:
- Sound historical financials – the past is often times a good indication of the future. Dramatic changes in trends from the past to the future need to be explainable and believable.
- Detail your assumptions – capture each and every assumption and test them before you employ them in your forecast. Be able to explain the assumptions and defend them.
- Test the logic built into your model – test it yourself, give it to a trusted colleague to test, give it to your accountant/financial advisor to test. After you’re satisfied, give it one more test.
- Consider buying or subscribing to a forecasting tool – Many companies rely solely on Excel models. I can almost guarantee you that there are flaws in any such models. Using a forecasting tool can eliminate many of these flaws, make it simpler to import actual data, and make it far easier to do what-if scenarios.
- Presentation – Simpler is better. Prepare materials that are easy to read and understand and have supplemental charts, graphs, and more that drill down into more detail should questions come up.
Working on these points will go a long way to developing better forecast, budgets, and long range plans. One other thing to keep in mind: make sure you and your financial partner understand the projections thoroughly and can talk about them easily and freely. No matter how sound they may be, if you’re unsure of yourself in front of potential investors, they will be wary of what you are telling them.
Next time we’ll talk a bit about why it may be helpful to enlist the help of professional people to help you sell (or buy) a company and when it is appropriate to do so.
If you are contemplating to sell your business, make sure to join our next NSS CEO Workshop on this topic on Tuesday, Nov 9, 2010