How Do You Assess Business Attractiveness?
It’s always smart to bring in a team of professionals to help assess your company because they can be objective when you, the business owner, may not be. This team would include an exit advisor, a lawyer, an accountant, and an appraiser at different stages in the exit planning process. To begin, it’s essential to understand what your company’s value is now. This is the appraiser’s job.
It’s smart to be realistic about your company’s valuation. Take what the appraiser tells you and learn from it. You can’t improve something if you haven’t honestly evaluated it. That valuation gives you a starting point and an initial benchmark against which you can measure improvement.
From there you can begin installing value drivers and making your company stronger and more attractive to buyers.
One key value driver is a good management team, one that will run your company seamlessly according to established policies and procedures. Making sure that you have a skilled management team that will remain in place following a sale reduces owner dependency and telegraphs to buyers that the company is a worthwhile investment.
Exit Coach Radio Podcast
In this podcast Vincent talks about how owners can make their companies more attractive and salable, highlighting the three factors he considers to be most important.
Currently the #1 reason owners exit their businesses is retirement, and the average owner has 60-90% of his net worth wrapped up in his business. For those owners it’s imperative that they get good offers when their companies go on the market. If they do not, their standard of living will significantly decline post-retirement.
When we at Prometis Partners work with clients, we discuss how they can de-risk their businesses and remove any factors that pull them down or make them vulnerable to either internal or external conflicts. It’s always a goal to strengthen businesses so that they are as recession proof as possible. Owners can’t control the economy or the ability of buyers to get financing, but they can diversify their product lines or add to the services they offer.
Click here to listen.
How Much Time Does Building Attractiveness Take?
It takes time, often years. The exit planning process should not be left until right before a sale because businesses that look neglected, inexpertly managed, or owner dependent will not attract buyers who want to pay full price. They are a risk, and investors don’t like to gamble with their money. If you, as an owner, can prove that your business is a consistently profitable, expertly managed machine that can run without you, you will be able to attract multiple buyers and sell it at top dollar.
Another advantage of preparing your company for sale early on is that, once it’s operating smoothly, you can choose to sell it when the market for companies is good and buyers are able to easily get financing. You will get a better price for your company if you sell under favorable market conditions – instead of selling it when you are burned out or forced by circumstances to retire. When you choose the terms of the sale, including the time of the sale, your results will be much more advantageous. You can only sell your business once. You should do everything you can to optimize any factors that will affect price.
It can take three to five years of preparation, maximizing cash flow and installing good management, to make your company attractive enough to create the kind of competitive bidding situation that leads to a sale that will meet your financial goals moving on. Involving an exit planning team early on can make a huge difference in your outcome.
If Prometis Partners can help you with any of this process, from assessment to goal setting and benchmarking, we would be happy to talk to you about your company, its unique attributes, and how we can work together to strengthen and better position it for an eventual sale.