"One thing we see a lot when we meet with potential sellers of middle market tech companies is a disconnect between the attractiveness or appearance of the business in the marketplace versus the actual value of the business.
There are a lot of considerations we place in Packaging and Marketing a company. When it comes to Buyers, investors and lending institutions, we know exactly what they are looking for and expecting in a target company. It is our job to make sure they see the things that they want to see, as well as those that are necessary, to orchestrate the desire to finance and close the deal. Many brokers fail in selling Internet Businesses because they simply don’t understand the nuances of an Internet Business, so they miss out on the opportunity to provide the exact information the professional buyer and the lending institution needs. We ensure that the important information on the target is in front of the buyer and its investors upfront so that it can see the true value and potential of the business.
Having owned and operated dozens of companies, the founders behind ValleyBiggs truly understand the desire to pay absolutely as little as possible in taxes. It is very common to bury profits in the many available line items of the financial statement. It is then assumed that you can tell the potential Buyer about all the hidden treasure. This is partially the case. Even though Buyers know the cash flow is there, they might not necessarily know how much is there. They will definitely discount the price because of this. Unfortunately, that is only half the problem. When the securing of financing for deal is involved, it is the bank or investor and their underwriting teams that will be making the final decision, and they do not consistently allow these add backs. Lenders will give the add backs consideration, but this consideration usually does not work out so well for the Seller. There is a way to have your cake and eat it too, but only a brokerage with in-depth knowledge of the inner workings of financing and underwriting will have the know-how to get the job done.
When it comes time to sell, lenders and investors usually want to see 3 years of tax returns, Income statements, a balance sheet and all relevant general ledger entries. They put a lot of emphasis on the trailing twelve months in technology companies because many things can change so rapidly in this sector. The latest year leading into the sale must reflect the hidden numbers, because if they don’t, the transaction is walking with one foot in the bucket. The previous year needs to reflect a substantial portion of those numbers, and if it is necessary to facilitate the loan with a bank, an amendment will need to be filed for the 3rd year tax returns in order to bring them in line with expectations.
The profit column on the tax return isn’t the final step in the eyes of underwriters and investors; it is merely the first. For sole proprietors, which there tend to be a lot of,
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