Guest Columns

Industry Issues

Selling a dairy business smoothly

Michael Schwantes

Michael Schwantes is president and CEO of Creative Business Services/CBS-Global, Green Bay, Wisconsin. He contributes this column exclusively for Cheese Market News®.

Proper preparation is crucial when contemplating the sale of your business, whether it’s your entire company, a specific division or a product line. For cheese and dairy industry leaders, ensuring that your asset is attractive to prospective buyers involves a series of strategic steps that can significantly smooth the transition and enhance your asset’s market appeal.

• Clean up your financials

A primary hurdle in business transactions is a disorganized balance sheet. Fear not; accounting, when approached as an ally, can greatly simplify this process. A critical element in your balance sheet is the current ratio, which compares your current assets to your current liabilities. An imbalance here, particularly where liabilities exceed assets, signals illiquidity — a red flag for potential buyers.

Current assets, which include cash, accounts receivable, inventory, deposits and prepaid expenses, should be readily convertible to cash. Conversely, current liabilities like accounts payable, accrued expenses and the due portions of loans need careful management. Streamlining your balance sheet could involve aggressively managing receivables to ensure they are collected within 30 days. Payment delays can tie up cash, potentially leading buyers to seek a price reduction to cover the costs of financing these delays.

• Inventory and long-term debt management

Inventory health is another crucial consideration. The obsolete or slow-moving stock should be addressed before entering the sales process. Consulting with your accountant on how to write off this inventory is advisable, as it impacts earnings and could lead to reduced valuations if not handled pre-sale.

Long-term debt must also be tackled head-on. It’s a common oversight for sellers to either ignore this debt or assume the buyer will take it over without question. Clearing up long-term obligations reinforces the integrity of your financial presentation.

• Legal and operational readiness

Any outstanding legal issues should be resolved prior to a sale. Concealing or failing to disclose such matters can severely undermine your negotiating position and credibility. Transparent discussions about past lawsuits and their outcomes are necessary to foster trust.

Furthermore, boosting your company’s profitability is critical to enhancing its valuation. This might mean making tough decisions regarding personnel or finding efficiencies in operations. Assess what roles are essential and be decisive in your personnel management. Sometimes, tough decisions are necessary to align your workforce with the business’s strategic goals.

• Revenue enhancement strategies

On the revenue front, the formula is straightforward: increase revenues while maintaining or reducing expenses. This might involve motivating your sales team with new incentives or innovating your product offerings to capture additional market share. Preparing for sale isn’t just about improving what’s currently in place but also demonstrating potential future gains to the buyer.

• Transparency with potential buyers

If there are areas where you haven’t been able to implement improvements, be honest with potential buyers about where these opportunities lie. Such transparency can often be interpreted as goodwill, potentially smoothing the negotiation process and enhancing the likelihood of a successful transaction.

• Setting up for long-term success

Avoid short-term fixes in favor of strategies that promise long-term benefits. Buyers are discerning and will value a business more highly if it’s set up for sustained success rather than temporary gains.

• Personal expenses and owner dependency

Addressing personal expenses that run through the business and making these clear can also help clarify the true financial picture. Known as “addbacks,” these can include one-time expenses or owner-specific expenditures, which, once removed, provide a clearer view of the business’s operational earnings.

Finally, reduce your personal involvement in daily operations to make your business more attractive.

Businesses that do not rely heavily on their current owner are more appealing, as they promise continuity post-transition.

By implementing these strategies, you position your business as a robust, attractive asset ready for a smooth transition. Remember, the goal is not just to sell but to sell well, maximizing both the financial return and the strategic fit with the new owner.


The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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