5 Steps to Maximize Enterprise Value (The revised complete article)

By Robert Kheir, MBA, CMA

Robert is a senior analyst at CFA. Prior to joining CFA in late 2005, Robert was a financial analyst at Pitney Bowes Canada (March 2003 to September 2005) and business analyst at Hewlett Packard Canada (September 1999 to March 2003).

Prime time television is littered with design shows, from staging a home for sale to renovating a
dream kitchen. Newspapers now dedicate entire sections to Real estate and Design. All of this
media attention caters to North American’s fascination with maximizing the value of an asset

that represents a substantial portion of their personal net worth: Their home.

For some North Americans who are business owners, their enterprise is their single largest asset.
Every day they get up to go to work, they put a substantial portion of their personal net worth on
the line. If that’s the case, why is so little written about ‘staging a company for sale’?

The theory of crosspollination states that if you take the knowledge from one discipline and apply
it to another, there is the potential for enrichment. So we’ve decided to take the dearth of
information on ‘staging a home for sale’ and applying it to ‘staging a company for sale’. In other
words the world of ‘Crate and Barrel’ meets the world of ‘Mergers and Acquisitions’.

1. Curb appeal

The first thing a home-buyer always sees is the outside of the home. The first thing a business
buyer asks to see is financial statements. Never forget about those first impressions.
A business’ statements speak volumes about the organization, much like a front yard. If a
business had a hiccup one year, an owner will need to ensure there is valid commentary behind it.
Also, financial ratios should be up to industry standards, as everything from inventory turns to
gross margins will be analyzed. Lastly, every business should have defensible forecasts prior to
sale and remember those hockey stick forecasts rarely stand-up to scrutiny.

2. Depersonalize

As any realtor named Tom, Dick or Harry will tell you, a potential home-buyer visualizes
themselves living in the home, as they stroll through the rooms. If you’ve plastered your
honeymoon pics all over the house, it’ll be a tough sell.
The same is true in a business sale. An owner who has a ‘rubber stamp’ on every facet of the
business marginalizes the operation in the buyer’s eyes.
“Owners who run their ships like it will sink without them, risk having their valuations sink faster
than an anchor” says a Principal at a leading California based Private Equity Group. Most buyers
ask the question, “Will the business walk, if the owner walks?” They are buying the business not
the owner. The more the business is delegated to decision-making management, the more it
reassures the buyers that the owner has built a system that works and is scaleable.

3. Neutral Tones

Neutral tones in a home appeal to wider array of buyers. Serving a wide market also serves this
purpose for a business - it's called 'customer diversification'.

For instance, having General Motors represent 20% or more of revenues, when the market for
automobiles is stagnant and the flood of imports is evaporating market share faster than the arctic
glaciers is a red-flag from a potential buyer. It’s akin to painting an entire house bright red. In
both instances, neither asset is screaming “buy me”.

4. Declutter

Apparently, home buyers love to peak into closets and pantries. In selling a business, any “dirty
laundry” shoved into closets will be found during the due diligence process. The more candid and
transparent the information the smoother the selling process.
If a business has a pending litigation, it is important to bring it out in the open and explain it to
the prospective buyers. Good buyers understand that these types of things are costs of doing
business – Just like ‘cleaning’ is a cost of owning a home.

5. Add Warmth

Home stagers will often tell a homeowner to add fresh flowers to warm up the room - "it’s the
little things that matter" they say.

Warmth in a business comes from employees. A crabby receptionist to disgruntled employees
huddled around the water cooler, they stand out like sore thumbs and savvy buyers pick-up on
these things. You can also bet potential buyers will be chatting to employees, whether directly or
indirectly. There is an old adage that says “if you take care of your employees, they’ll take care of
your business” – This speaks volumes when selling a business.

The Investment Bankers can also teach a thing or two to the Realtors, but for right now we’ve
taken a page out of their playbook.