One of the biggest mistakes we see business owner’s make is waiting too long to start the selling process. I’m not talking about going to market; I’m talking about building up the value of their company and cleaning out the cob webs BEFORE they hit the market.
As a business owner, the majority of your wealth is probably tied to your company. In your mind you have a dollar amount you want to receive when it’s time to sell. More often than not, owners miss that coveted number because they aren’t focused on that sale date internally, meaning they’ve let some things slide. Everything from company culture, solid policies, processes, and procedures to healthy management – in the end they all count. Well-oiled companies bring top dollar, those with the proverbial cob webs do not.
The Bottom Line Matters
We all know that revenue doesn’t equal profits – buyers are far more interested in earnings and cash flow than what numbers the sales team posted last quarter. Making sure your business has sustainable profitability will make you a lot more attractive to top buyers.
Quality of Earnings
It goes back to cash flow again. Buyers want predictability AND sustainability. Does your company have long term contracts, maintenance contracts, and/or some type of recurring revenue? Buyers gravitate towards businesses who do, it makes for more consistent cash flow versus constantly chasing a sale.
Most businesses are more attractive and valuable if the current owner has stepped back from the company, AND the company is running fine without them. If you haven’t started this process, there is no better time than now! Begin by cutting out all the owner perks such as business owned homes, cars, toys –boats and vacation spots.
Backing out the perks becomes a laborious process and banks don’t look highly on it during the selling process. So, start cutting back at least two years prior to your go date.
No one likes all the eggs in one basket. Risk is a threat to a company’s bottom line, and one of the most common risks is when a company is reliant on a single customer, product and/or vendor to be profitable. Diversification can take many paths: Expanding product lines, increasing supply chain channels, and growing your market thereby diversifying your customer base.
We like to begin working with business owners 5 years out to help them through this process. It can be overwhelming, but more importantly it’s an emotional one. Leaving a company you’ve invested the majority of your life to is hard. To learn more how we help owners through the process click here to learn more about our Exit AdvantageTM program