If you think you are ready to sell your company, then read these tips that can help increase the value of your company. This information is prepared after assisting with many sell-side transactions by watching and learning where companies succeed or fall short. By focusing on these three steps you will be positioning your company to create greater buyer demand and more than one offer to review.
1. Create a Solid Management Team:
Yes, you built your business and it will likely be challenged to survive without you. It’s a difficult picture to form in your mind, but it’s one that any potential buyer will see. Any successful business must move beyond the founders and continue to operate regardless of ownership. Too many businesses are overly reliant on the owner/founder so it important to keep this thought in mind: the acquisition is an investment for the buyers. A winning management team provides two big benefits to owners. One, they provide depth and growth potential for the team. Two, they’ve proven that the company operates without “the boss” and is truly a transferable investment.
2. Build a Diversified Business:
Many business owners start their business with a single customer or product. As the business grows it is important to attract new customers, develop new products and expand into new geographies. This diversifies the business and is a critical step to de-risking the business. Too much revenue in any single customer/product/geography shows that the Company hasn’t fully developed and this scenario appears risky to potential buyers. The presence of risk provides buyers the opportunity to discount the transaction value. It also goes without saying that with increased risk there will likely be fewer buyers, and fewer buyers results in fewer offers.
3. Develop Comprehensive Compliance Programs
We all know there are more then enough regulations to deal with in today’s business climate. Compliance is a necessary part of business, but all too often it is treated as an afterthought. However, having internal/external reporting systems in place creates a well-documented and properly functioning company. I recommend that every company have audited financials. Audited financials help identify deficiencies. Also, if you are fortunate enough to entertain multiple offers and enter the due diligence process, your CPA is an invaluable partner. But compliance also means labor laws, employee safety training, environmental regulations, DOT filings etc. Like the CPA, outside experts can be very helpful in providing best in class processes. Regulatory short comings can derail a transaction, create a lower value or even require that you place excessive escrow dollars aside as a warranty in the final transaction.
If you are serious about selling your company, take a close look at these three steps; (1) create a solid management team, (2) build a diversified business that does not focus on one customer segment or one geography, and (3) be compliant with applicable laws and regulations. If you focus attention on these three areas you will attract top buyers when you decide to sell your company. In the meantime, you’ve built a better company that runs efficiently, attracts top talent and wins new customers.
John Illes, Managing Director, Merit Harbor group