Consider a potential scene from the future: a potential buyer for your business has retracted their offer because due diligence revealed serious issues with your company. This is a common scenario for small businesses, who often see lowered valuations after buyers dig into their records. This is a preventable crisis—one you can work to actively prevent now, before you put your business on the market.
Most owners fail to plan for a sale early enough in the life of their business. Because they have no experience selling a company, they underestimate the time, effort, and skill it takes. So they try to sell when they’ve had enough, not when they have maximized the value of their company in the eyes of a potential buyer.
Today’s buyers are more skeptical thanks to the aftershocks of the Great Recession, and now COVID. You must be prepared to meet their skepticism with hard data showing that your business is a valuable and worthwhile investment. To increase value and sellability, you must look at your business through the eyes of a potential buyer. The first step toward accomplishing that feat is to get a realistic picture of where you are today by hiring a seasoned accredited appraiser to provide a comprehensive valuation of the Company.
Next, using the valuation as business intelligence, the right advisor can help you identify key value drivers that may increase sale price by 20 to 40 percent, and sometimes even more. A valuation may unveil weaknesses that you can begin working on today, saving you time and stress down the road when you’re trying to sell.
Some common drivers of value include:
- positive growth trends
- growing customer mix
- sales backlog
- a strong market niche
- a recognizable, respected brand
- highly skilled employees or managers
- a loyal workforce
- good vendor relationships
- strong product differentiation
- quality technology
- valuable intellectual property
- modern work flows and processes
- continuous growth in profitability
- competitive entry barriers
- strong corporate culture
- loyal customers
You will need at least 2 years to improve these key value drivers, and sometimes more. This also allows you time to correct cosmetic issues and incrementally build value.
One of the easiest ways to build value is by improving customer relationships and corporate culture. In some cases, remaining with the company as an advisor or consultant following the sale can help promote strong relationships following the sale.
Another important area of focus is your management team. Strong companies can run well in the absence of an owner. Decreasing owner dependence also decreases risk to the buyer. So now is the time to weigh the quality of your management team, implement new policies and procedures, and make personnel changes as needed. Buyers value strong management because the right team can make the transition seamless, helping to steadily grow value even amid the turmoil of a sale.
If you’re anticipating an exit in the next 5 to 10 years, don’t wait until then to begin planning. Exit planning begins early, and is a significant source of value for owners who can devise and stick with an intelligent plan.
About Vision Point Capital
For over 20 years, our team has supported our clients with comprehensive advisory services to help them with their complex business valuation and transition needs. Few other firms offer such a complete suite of business transition services as it relates to M&A, Valuation, and ESOPs.
Our client’s personal goals are at the heart of everything we do. We are well versed in advising clients across a broad range of industries and help them manage and navigate valuation and all the business transition alternatives available to them. In fact, when you work with Vision Point Capital, you leverage our resources, experience, and expertise to help you grow faster and optimize value for reaching a successful business transition.
