Once you understand the different types of buyers, the next step is identifying which specific buyer is best for your business. The right buyer isn’t just someone who can offer a fair price — they should align with your goals, values, and vision for the company’s future. This week, we will explore how to identify, […]
If you’re like most business owners we interact with daily, you likely have zero intention of selling your company today; however, a day might come when you identify a catalyst necessitating a sale.
If you think there’s even a slight chance you will sell your company in the next five to seven years, there are specific steps you can and should begin taking today that will maximize your company’s value when you decide to sell it. Furthermore, implementing these measures will make your business stronger now, not just in the future.
- Organize Your Accounting and Financial Reporting: Maintain accurate, organized, and transparent financial records. This includes having audits performed on a yearly basis. Most buyers will want to see 3 to 5 years’ worth of audits (or reviews).
- Establish A Strong Leadership Team: Build and retain a knowledgeable and capable management team you can trust to run the company without your daily involvement. The two most important roles to fill are the CFO and COO positions.
- Reduce Your Involvement in the Business: By gradually finding ways to remove yourself from day-to-day operations, you ensure that the business can continue to perform at a high-level without you there at every step. This will prepare your business for a potential sale and empower your team to take on more responsibilities.
- Create A Succession Plan: Establish a clear plan for who could take over the company’s leadership. Most buyers want to know that the next President or CEO has been identified and is prepared to run the company immediately.
- Document Non-Recurring Events That Impact Financial Performance: In other words, prepare a written explanation for any significant events that impact revenues and profitability for the company. Explain why they happened and why they will likely not occur again.
- Diversify Revenue Streams: Reducing reliance on a single customer or product line will minimize risk and make your business more attractive to buyers. Furthermore, focus on strengthening your customer base by striking a strong balance between client retention and expansion.
- Upgrade Technology and Systems: Invest in up-to-date technologies and systems that improve efficiency and make sure the business is more appealing to tech-savvy buyers. For example, if your business is becoming too complex to run out of QuickBooks, it’s probably time to switch to a more robust ERP system.
- Document Key Processes: Create detailed documentation for all major business processes. This will help a buyer better understand your company and smoothen the transition process.
- Solidify Contracts with Key Customers and Suppliers: Lock in long-term contracts with key customers and suppliers to assure buyers of continued revenue and stability.
- Document Potential Add-Backs (Adjustments): Determine what expenses are hitting the P&L that are unrelated to ongoing operations. Examples include personal expenses, extraneous corporate amenities, and above/below market compensation.
- Protect Key Intellectual Property: Secure your company’s IP, such as patents, trademarks, and proprietary technologies, to increase their value.
Western has advised family-owned or otherwise closely held companies on M&A for over twenty-five years. Accordingly, we have developed a strong sense of what can drive value and increase the success of a business sale. Above are the eleven items we feel are most important for any company to do, regardless of current plans to transact. However, a litany of other items can create value, such as developing incentive plans to retain key employees during a business transition.
What differentiates Western is our belief in a long-term, relationship-oriented approach to doing business. Our average sell-side M&A transaction closes around four to five years after introductions. In the intervening years, we have helped our clients implement many of the above mentioned practices. If you would like advice or support in strengthening your company (for M&A or in general), consider calling us today. We have an extensive history of helping talented business leaders nationwide take their companies to the next level.
For more information, please visit www.western-companies.com or contact our Chief Commercial Officer, Rick Groesch, at rick@western-companies.com.