The Difference Between Being Ready to Sell and Being Prepared to Sell
As featured in our Q2 2012 Capital Ideas Newsletter. An article by Peter Moore, Managing Director of our Portland, Maine Office office.
Often when we meet a business owner for the first time and he proclaims he is ready to sell his business we soon find after a few key questions that the owner is not properly prepared to sell his company. When it comes to the sale of your business readiness is usually an emotional state of mind. I’m ready to let go. I’m tired of this business and ready to move on”, are some of the refrains from business owners who’ve decided they wish to sell their company and retire like so many of their friends have done.
The Preparedness Factor® however is an elevated state of readiness achieved by careful planning, consultation with key advisors (attorney, accountant, financial planner, insurance advisor, banker and investment banker) and the creation of a road map on how to achieve your plans for life after business.
One of the most important areas of consideration in the process of reaching the Preparedness Factor® is examining the key attributes that contribute to value in your business. These Value Drivers are the evidence buyers are looking for, and which must exist in order for you to obtain a premium price for your business. Without these your company will appear ordinary, average and lacking a compelling reason for someone to pay top dollar for your company.
Results Driven Management Team:
Buyers are willing to pay a premium price when they believe their investment will be protected and improved upon by a responsible and motivated management team who take pride in producing above average results.
In order to convinced buyers your managers are an A-team, the management team must demonstrate they are responsible for setting goals, monitoring activities and results, motivating the employees, and using their unique abilities and talent to deliver a product or service to a growing base of highly satisfied customers.
This requires appropriate compensation, payment of performance bonuses, and recognition for key managers and not just the owner. Evidence of a good management team includes low employee turnover, regular receipt of satisfied customer testimonials, steadily improving cash flows, excellent banking relationships, industry recognition, and well established employee financial incentives.
Codification of Business Operating Systems:
It’s critically important to buyers and investors that a company have all of its essential systems codified, well documented, and kept up to date. Selling and CRM systems, accounting and finance systems, employee training and development, manufacturing, quality control, credit and collections, and facilities management are just a few areas, which when properly codified, contribute significant value and provide confidence to buyers.
Existence of a Broad, Loyal, Satisfied Customer Base:
If you’ve spent decades building your company, you’ll want to provide ample evidence you have a significant base of satisfied and repeat customers who desire your product or service and rely on your company to provide something important to them. Well documented customer histories, including buying volume, credit and payment experience, cooperation and contacts with key persons at the customer’s place of business are the evidence buyers seek.
Impeccably Maintained Facilities:
Great curb appeal leaves a positive lasting impression. It’s essential that business owners maintain the outside grounds and working areas of their facilities in the best possible conditions. Well landscaped grounds, well maintained buildings, welcoming entrances, helpful signage and neat, clean and uncluttered interiors all telegraph a message that the owner cares about the operating environment for his employees and customers alike. It costs little to be clean and tidy, but it can cost you a lot in lost value if this area is neglected.
Protection of Intellectual Property (IP):
For any company with proprietary know-how, a portfolio of patents, trademarks and trade secrets, exclusive rights or licenses, and other unique abilities, it is important to have these assets properly and thoroughly catalogued. It is also important to provide evidence that these IP elements are properly maintained, have updated legal status and are regularly evaluated and defended against infringement or improper use by outside parties.
Reasonable Growth Optimization Strategy: Having an existing business plan which articulates the company’s ongoing efforts to grow and generate superior returns on invested capital will be welcomed by all prospective buyers. If it’s reasonable it provides yet additional evidence that their decision to buy will be supported by a road map to the future and sustained success. Business plans are dynamic documents, and should be updated at least annually. When well written and monitored, they are further evidence of a fine tuned management team.
Effective Financial Controls:
The existence of well established financial data gathering protocols and the preparation of timely and useful management financial statements and detailed financial reports is another high value attribute well run companies demonstrate easily. The disciplines implied by their use provide evidence of a focused and attentive management team.
Stable and Improving Cash Flows:
After all the other value elements are examined, it is ultimately the regular production of positive and growing cash flows that provide the underpinnings of value for every company. Having the ability to achieve regular and sustainable growth in this area is perhaps the single greatest value driver, and again it provides evidence of superior management.
Paying careful attention to these factors and providing documented evidence of achievement in each of these areas will mean you’ve embraced the Preparedness Factor® and are able to demonstrate the key Value Drivers for your company.
For additional information contact:
Douglas Nix, CA | Vice Chairman
Corporate Finance Associates | Toronto West | 905-845-4340 x211 | firstname.lastname@example.org