Are you Maximizing your Business Value before Selling?
By Rudi Scheiber-Kurtz, CEO of Next Stage Solutions, Inc
If you ask any professional business or M&A advisor “What is the optimal time to maximize the value for my business before selling?” The most common answer is – 24 MONTHS.
In reality, it turns out to be more like 24 WEEKS as the owner is tired, anxious, and ready to make the change. One of my investment banker friends recently told me that never before has it taken so long to close a deal – up to 16 MONTHS with issues from both the sell and buy side. There is now more cash available than ever before and the time may be ideal for you. However, maximizing the value of your business requires proper planning and sound execution.
Are business owners willing to leave money on the table? Hiring an internal advisor to increase your value by $2-5Million seems to be a no brainer. The only caveat is that value creation does have a time factor. This investment will be well worth your time and money. Let me list a few things to consider:
- Streamline and document your business processes and systems so your employees have a guide and perform better
- Increase your utilization rate from 50-75% to optimally use your current ERP system
- Eliminate manual input into information systems wherever possible
- Understand your margins by product and services. It is the only way to eliminate waste and non-profitable areas that drain your resources
- Have a 2 year customer satisfaction and retention strategy plan to address issues with any problematic customers
- Re-organize your executive team for optimal advantage to a buyer
- Start with a Benchmark Assessment that compares your business to Best Practices to minimize your intrinsic risks
- The GAP Analyses from your assessment will indicate where to make immediate improvements and where improvements should be made over the next 24 months
It is certainly a daunting task to prepare a business for sale; yet not properly preparing for it would be a shame after all the years you spent building a successful Company. Every one of the above steps will add value to your business, and these are only a sample. The upside of being prepared is that you have more negotiating power with a potential buyer and the power to walk away from the deal.
Start value building today. Consider a benchmark assessment that will give you a baseline and leads you towards transformation initiatives. We call them EBITDA (earnings before tax, depreciation, and amortization) Transformations. In a relatively short time you can improve both top and bottom line for your business.
Take care of your risks and areas of weakness today rather than have a buyer use them to decrease your business value or walk away from the deal.
- Develop a Roadmap using a GPS
- Build it for 24 months addressing and fixing all the potholes
- Have a faster drive to selling your business
Excellent resources are available in guiding your through this process. However, the best investment you will make is hiring the right advisors to support you through this process. Joe Marrow of Morse, Barnes-Brown Pendelton lists four key points to consider in his article “Planning for a Liquidity Event — Choosing the Correct Exit Strategy”:
- Focus on Execution
- Be Bought, Not Sold
- Surround Yourself with Excellent Advisors
- Choose the Correct Exit Strategy
What is a potential buyer looking for?
- EBITDA compared to annual sales
- Customer base and profitability within products/segments
- Processes and policies in place
- Systems integration and optimization
- Inter-departmental emphasis in problem solving
- Focus on Customer acquisition and value add
- Growth opportunity in the future market place
Is it the right time? Is it a sellers or buyers market? According to Jeff Mortimer’s investment statistics, it is a good time to sell and buy. Jeff Mortimer, Director of Investment Strategy with BNY Mellon, has collected impressive data including market confidence factors, common market assumptions and the seasonality and cyclical nature of the market in any given economy over the past twenty years.
Timing is favorable also in terms of cost of capital given the low interest rates. Quantitative Easing will be most likely eliminated and we will start to see an uptick in interest rates.
The window is NOW if you are contemplating selling your business. Start today and give yourself the time you need to eliminate your weaknesses and risks.
And one more thing! Doing it alone is not a good option, so finding the right advisor will be one of the most important investments you will make.
NSS has participated in over 50 M&A activities, many on the buy side. Our advisors work with you inside the business, we walk the floors and roll up our sleeves. We use our own comprehensive benchmark assessment tool to give you a baseline and gap analysis, then start building value and minimize your risks. Our GPS comes free!!