For most government contractors, there will come a time when the best exit strategy might be to sell your business to another company or buyer. Hopefully, you will have diversified your contract mix with a good percentage of your work as non-set aside to make your business more attractive to outside buyers. However, are you doing everything you can to position yourself for possible sale in the future? Here are some pointers to keep in mind when beginning this process:

1. Engage outside trusted/experienced advisors well in advance to help you navigate through the process. These should be individuals well versed in M&A activity (transaction attorney, CPA, financial planner), with no vested interest in the outcome. Your CFO is therefore probably not the best person to be your trusted advisor. Your generalist corporate attorney is also not usually right for the job. The investment in competent outside parties is well worth the cost, from possible increased valuation to minimization of issues that arise during the sale process.

2. Compare your situation against the marketplace value drivers. Positioning yourself for sale means making yourself as attractive as possible to a prospective buyer. Comparing your present situation against the marketplace value drivers and improving in those areas where the company is falling short can go a long way to maximizing the value you may receive.

3. Clean up your books and records. If you haven’t been audited by independent auditors previously, now would be the time to consider doing so. It makes buyers more confident in the accounting records and financial information you are providing. Scrub down your balance sheet, write off any assets that are unrealizable, fully record all liabilities, and make sure you are in compliance with generally accepted accounting principles. You just can’t hide things – everything is going to come out in due diligence.

4. Resolve any lingering legal issues. Buyers hate surprises and lingering legal issues of any kind can only reduce the offer amount for the company. It’s important to get closure on employee grievances, tax claims and the like. These issues are going to come out in negotiations/due diligence; you need to have them addressed.

5. Resolve any shareholder concerns or issues. If there are other shareholders in the company, you’ll need to determine the degree of agreement or disagreement with the plans for sale. If you have stock option holders or even phantom stockholders, be sure they understand the ramifications of your decision to sell.

6. Prepare yourself for due diligence. Most buyers will engage a due diligence team to pore over your corporate financial, legal and business records. This is like another audit, but often more intense. Assign someone in the company to be the point of contact (your controller or accounting manager) to make sure everything is in order, copies of important documents can be provided to the team, and all loose ends are taken care of.

Do everything possible to cooperate with the due diligence team; the deal can’t move forward without their report. There is often bank financing involved on the seller side; the bank won’t release a loan unless they are comfortable with the findings of due diligence. The costs of due diligence can often be reduced with the use of online electronic databases for financial and corporate document information sharing. This reduces the time necessary in having a team camp out in your offices.

7. Be open with negative information. Let’s face it, nearly every company probably has something that they wished never happened and would just go away. Being open and honest with the potential buyer creates a better climate for negotiations. It’s better to disclose all these things and potentially lose the deal than to keep it a secret and get sued afterward.

8. Tell your employees/Don’t tell your employees. This is tricky. You need some employees to facilitate the sale. On the other hand, most buyers don’t want a lot of employee concern over something that may not even happen; it can lead to poor morale or even an employee exodus.

Outright lies damage trust. It’s best to be somewhat vague and fuzzy when or if asked. After all, the deal may never even go through.

9. Don’t get greedy. Be realistic in what your business is worth. This isn’t the 1990s. With rare exceptions, buyers are not going to be stupid about what they will pay for a business.

This is only scratching the surface of the steps involved in getting your business ready for sale. The important thing to keep in mind is to start thinking about it early and get your team of trusted advisors in place to help guide you down the road and avoid the pitfalls along the way.

Jeffrey S. Burr, CPA/CFF, CFE, MBA is a Director of Federal Strategies Group, LLC. He provides government contract and management consulting, M&A advisory, forensic accounting and expert testimony services to the government contracting and technology industries. He can be reached via email at JeffB@FedStrat.com.