If you are thinking of selling your business it is essential to objectively assess its performance in all key functional areas, through the eyes of a strategic or financial buyer.
Prior to the credit crunch and the resulting shrinkage of investment capital, a significant number of lower market middle businesses were being sold at higher multiples of adjusted earnings (EBITDA) than what can be expected now. Many of these were owned by baby boomers that notably are transitioning out of their businesses at an earlier age, a trend expected to continue through this decade. Although the recovery is gaining traction and investment climate is warming, the market will not return to pre-crunch multiples, which were for the most part inflated. Investors will be more conservative in their evaluations of acquisition targets. Beyond financial performance they will be digging deeper into management and operational performance. If you are thinking of selling your business it is essential to objectively assess its performance in all key functional areas, through the eyes of a strategic or financial buyer. How your firm ranks against buyer expectations can have significant positive or negative or impact on what a buyer will pay for the business.
Maximizing the value of your business begins with an impartial assessment of its performance relative to a buyer’s due diligence focus. Beyond financial performance, here are just some of the key areas you need to evaluate qualitatively and measure quantitatively (where possible) along with some of the critical questions a buyer will be asking and their implications.
Leadership and Management
Is your leadership team consistently improving results? Do your managers effectively engage the entire organization in executing plans successfully? Do they challenge processes to seek improvement?
Can the business function and meet its goals effectively in your absence?
Implications: The buyer wants to acquire a highly effective management team that can continue to function well in your absence.
Strategic Planning and Ability to Execute
Does your team conduct rigorous strategic planning to leverage opportunities, navigate threats and stay ahead of the market? Can you measure how successful they are in executing these plans?
Implications: It is estimated that a majority of businesses fail at executing strategic plans, or remain unsatisfied with the results. Those that are successful are far more attractive to buyers primarily because their success in this regard is a strong indicator of excellent leadership and management
Marketing, Sales and Customer Retention
When and how are marketing strategies revisited? Is their ROI measured? Is there a formal, documented sales process? Are outside sales trainers engaged? What methods are used to capture and measure customer satisfaction levels? Is a CRM system used to manage client interactions?
Implications: Revisiting marketing strategies indicates that the firm is staying abreast of (and possibly anticipating) markets changes, and adjusting its strategies accordingly. The use of outside sales training to augment internal programs provides fresh and objective perspectives and suggestions to improve performance. Measuring ROI provides a metric guide on how marketing dollars should be more effectively spent. Soliciting customer input and satisfaction levels are no longer an option. In increasingly commoditized markets customer service is the final and most important differentiation you will have.
These are only a few of the important areas that buyers will be concerned about, regardless of your industry and business model. Your self-assessment process will uncover deficits that should be addressed before going to market, in most cases at least 12 to 18 months beforehand. This is necessary because many improvements will take time to execute properly and show results, and secondly because when the firm does goes to market the improvements will not be viewed as an 11th hour attempt to improve performance, but rather seen as a track-record of ongoing and sustainable improvements. This is indicative of a very well run enterprise that will be of greater value to a buyer.
Seeing the business through the eyes of a buyer is a challenge, partially because most owners are not fully aware of what is most important to buyers, and also because owners are unlikely to view their “baby” with the objectivity of an outside party.
To insure objectivity, it’s best to hire an independent facilitator who will use specific assessment tools and will coach your team in executing the recommended steps for improvements.
Interestingly, in some cases owners who realized the positive impact of value enhancement on profitability and reduced stress opted not to sell after all!
Value enhancement initiatives make good business sense even if you are not planning to transition out of your business!
In forthcoming issues of our Synergies Blog Bulletin we will be delving deeper into each of the key areas mentioned above, and as always we welcome your questions and comments!
Jim Stoynoff is a seasoned entrepreneur who has helped hundreds of growing companies to finance and to improve their day-to-day operations. Jim can be reached at 312-920-1700 or jstoynoff@Synthesis.Biz also visit us at: www.Synthesis.Biz