Fall 2007 issue of Horizons

GENERAL TOPICS Selling Your Business (cont.)

4. Provide the components of all current and long-term assets and all documents and support. Document your company capitalization and depreciation policies, including asset useful lives and capitalization thresholds. 5. Make sure you have a roll forward of fixed assets by major classification and a schedule of all planned capital expenditures. 6. Document your policies and procedures with regard to cash disbursements and accounts payable, including materials purchasing, significant vendor terms, month and year-end cut-offs. Detail accounts payable agings by vendor. 7. For accrued expenses, provide a detail of all accrued expenses and document that the appropriate accruals have been recorded for all liabilities, including but not limited to salaries, wages and bonuses, vacation pay, warranties, customer returns, self-insurance and other insurance accruals, pension and post-retirement employee benefits, environmental reserves, litigation claims, severance/termination, deferred compensation, customer deposits and any other potential liability. 8. Provide listings of all current and non-current debt, including capitalized leases, notes payable and revolving lines of credit. Gather copies of all debt agreements. 9. Provide an analysis of all equity changes. Working Capital and Seasonality – Provide a schedule of monthly net sales, EBITDA and working capital. Working capital consists of current assets minus current liabilities, excluding cash and current portions of long-term debt. Be prepared to explain unusual trends and the impact of seasons and cycles on the business. Taxes – Provide all federal, foreign, state and local tax returns for all years in which the statute of limitations is not closed. Collect any IRS audits, current or pending sales/ use tax audits, tax notices, correspondence and inquiries for unresolved issues from any taxing jurisdiction. Provide a schedule showing each state/locale where the company has property, payroll or sales activity as compared to state income, sales/use, payroll, property or other tax filings. Provide support for whether taxes are collected and

remitted in each state where the company has a nexus. Gather copies of all resale certificates or other exemption documentation, payroll tax filings, deposits, a listing of any independent contractors and the appropriate Forms 1099, the state unemployment account balances and any state unemployment rate notices. Information Systems – Describe your information systemscapabilities, includingsystemreliability, hardware and software, organization structure, etc. Discuss whether your existing information systems are adequate to support the business in the near and long term. Provide your information systems budget and technology plan, along with reports from outside consultants regarding the information systems function. Document whether disaster recovery procedures are in place, the status of procedures and any periodic testing. Projections – Gather financial statement projections that include a breakdown of sales, cost of sales, gross profit and operating expenses for projected periods, along with the assumptions underlying such projections. If applicable, compare projected sales to your company’s current sales backlog with an analysis of projected headcount used in your assumptions. Attorney – Lastly, an attorney will organize your legal documents, helping with the confidentiality agreement, letter of intent (due diligence performed), sales contract/ purchase agreement, federal and state law requirements/ agreements and closing documents. Confidentiality Agreement – You must sign a confidentiality agreement before either party exchanges confidential information to prevent disclosure to third parties or use for competitive purposes. The agreement often includes provisions in which the parties agree not to hire one another’s employees or directly compete with each other. Letter of Intent – The letter of intent summarizes the most important terms of the transaction and usually is in effect for 30 days. The typical letter of intent is non-binding;

13 u winter 2007 issue