Maximizing the Sale of Your Company: Building Business Value

AdvantEdge Advisors - Merger & Acquisition Advisors

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Business owners planning a sale have a unique opportunity. Larger entities often have plenty of cash available for purchases. To take advantage of these opportunities, business owners must be prepared. Here are the considerations that can increase the sales value of your business.

Current Sales Environment

The last decade has been difficult for many owners. Some are exhausted, and want to liquidate so they can transition to something else. Others have done well, but have no one in a position to buy or run the business.

With globalization, the process of selling a business has become more complex. Companies can thrive and fail at a more rapid clip. But also the pool of potential buyers has increased. Unfamiliarity with the sales process disadvantages owners, spurring some to sale at a price lower than they should.

Many fail to plan for a transition, and may want to sell before the business’s value is maximized. This lowers sales value.

Your goal should be to position your business for optimal success within the confines of the current market. Sales and growth never continue indefinitely, so your planning strategy must include an honest evaluation of the market.

Incrementally Building Value

Many owners view their businesses as more valuable than they are. An objective advisor offers much-needed perspective that can help you incrementally build value. Some key drivers of value include:

  • Sales growth trends
    Strength of your sales backlog
    Your market niche
    Product and service margins
    Strong brand loyalty
    Relationships and leverage with vendors
    Your employees’ skill and dedication
    Advantages in production and brand differentiation
    A strong leadership team
    Preparation for due diligence
    Market barriers that keep competitors out

To increase value drivers, you’ll need a timeline of at least two years. Some buyers want an owner and management team to manage the transition, so be prepared. What’s more, cosmetic issues can drive down value, but are often easily corrected.

Some areas of value upon which to focus include:

  • Knowing current value
  • Gaining industry-specific transaction information
  • Identifying key drivers of value within the business
  • Regularly meeting with your team to discuss valuation issues
  • Creating a profit improvement program
  • Managing revenue expansion and gross profit margins
  • Preparing for due diligence with sell-side due diligence
  • Facilitating planning efforts
  • Managing the expansion of revenue and gross profit margin
  • Quantifying management adjustments to EBITDA and historical actual earnings

Existing customer relationships and company culture are critical areas for adding value. If the business is solid, employees must be willing to accept the new buyer, including the culture that buyer brings. Customers and employees often have negative perceptions of change, but high performance can improve these perceptions.

Maximizing Sale Proceeds

Following a few years of value optimization, business worth should increase. This can yield a higher sales price, and maximizes the amount of wealth you can transfer from your business. When you make an agreement regarding purchase prices, the value you’ve added will stand up to due diligence if you’ve properly prepared.

Continued owner involvement with the business is key to the ongoing development of a strong leadership team. It’s even more important when earnouts are incorporated into a sale price. Stipulations tied to revenue and profits may also be included in the purchase contract to obtain the full price.

You may see your company as part of the family, or perhaps even an extension of yourself. To a buyer, your business is an investment. By seeing things from their perspective, you can begin maximizing value well ahead of any sale. That means better growth for your business and, following a successful sale, more wealth for you.

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