By Clint Bundy
“The key is not to prioritize what’s on your schedule, but to schedule your priorities.” –Stephen Covey
As business owners begin to consider selling a business, it is vitally important for the owner and management team to prioritize, plan and carefully prepare for a successful transition process. Business owners are often surprised at the time and effort that is required in order to position a company for a successful sale. It is not unusual for the preparation and planning process to take three to five years.
As a first step, it is extremely important for an owner to have a team of key advisors in place. This team should include a corporate attorney with significant experience in mergers and acquisitions, an accountant, a financial planner, and an investment banker. The company will need each of these advisors at different points in the preparation and selling process to bring specialized expertise, guidance, and “checks and balances” to the owner.
Maximizing both the value of the business and targeting interest from qualified buyers are fundamental components for successful transactions. From a strategic perspective, a buyer will search for enterprises that are stable, profitable, and growing. There are several principles a seller and management can implement to deliver an organization that a buyer desires.
Strong Financial Systems and Professionals
An owner should focus on building a set of organized and “clean” company financial records, which demonstrate fiscal discipline and transparency to a buyer. In addition, it is important for the company to have a chief financial officer, controller, or seasoned accountant who can help articulate the company’s financial performance, projections and key financial metrics relative to the industry.
Broad Customer Base
If an owner has “too many eggs in one basket” in terms of dependence on one customer or industry, then the business will be less attractive to a buyer. Buyers will reward owners for a broad customer and industry base, as well as long-term customer commitment to the company, most often reinforced by customer contracts. An experienced corporate attorney can help an owner implement an effective customer contract strategy.
Facilities & Equipment
We all know the value of “curb appeal” in buying a home, and buying a business is no different. Shoring up the facilities attracts optimal buyers and speaks to the values of the owners and management teams. Facilities need to be in showcase mode for prospective buyers. Owners are wise to invest in repairs and new equipment prior to a sale, as a buyer will likely reduce an offer price if the company requires significant amounts of capital upgrades after close of the transaction.
Reduce Debt & Other Liabilities
A high debt load decreases options to an owner during a business sale; therefore, an owner is wise to maintain a conservative amount of business leverage. In addition, it is important for the owner to understand the company’s risk factors (examples include environmental contamination, worker’s compensation claims, and product and service warranties) and the practices, policies, and measures that can protect these downside risks. A business owner should consult the company attorney for a thorough review of these factors and the protection mechanisms at their disposal.
A final concept of critical importance to maximizing the sale value of a business is the company’s ability to show growth. To grow, businesses need to demonstrate an ability to offer new product lines, services, and expand into customer markets. While buyers certainly understand when business owners say, “My performance will pick up when the economy improves,” they focus more on companies that have found a way to perform in spite of the economy.
Business owners are wise to begin the planning and preparation process at the earliest stage possible. Building an advisory team is an important first step for an owner in the positioning process, followed by a strong focus on implementing the previously-mentioned principles. These efforts are directed towards one end goal—–increasing business value and creating a seamless, highly-profitable exit.
Clint Bundy leads the investment banking team for the Bundy Group’s Charlotte, North Carolina office. The Bundy Group, a key advisor to Forrest Firm clients, has successfully advised buyers and sellers in over 200 transactions in a diverse set of industries, including general industrials (manufacturing, transportation, and distribution), business services, technology, healthcare, financial services, and retail / food and beverage. Clint holds the Series 7, 63 and 79 securities license designation from the FINRA, and holds an undergraduate degree in government and economics from the University of Virginia, as well as an MBA from Wake Forest University.