When the time comes that transitioning away from business ownership becomes a relevant and realistic alternative, whether now or in a few years’ time, taking appropriate actions can help secure a higher value for your business.
As we emerge from the tumultuous M&A environment experienced over the past few years, we are hearing more and more from private company owners who are now considering exiting their ownership positions. Given the number of small and mid-market companies in the US, and the decline in M&A activity in this market segment since 2021, this rebound is hardly surprising. For many of these owners, this will be the one and only time they will go through the process of selling their business, so it is important to understand that planning ahead can make a substantial difference in how the business will be perceived and valued by prospective buyers.
Indeed, most companies were affected by the pandemic, and we often hear that we are finally emerging from the hangover of Covid, the infamous “Covid dip”, and all the resulting Covid-adjustments. Thankfully, it seems we can once again evaluate companies based on their actual results and outlook.
While this is increasingly true, this does not mean that you can ignore basic elements of a business that make it a successful, professional organization, and thereby an attractive acquisition target. Whether you are looking for a liquidity event to focus on other endeavors, or to ride into well-deserved retirement here are some selected items to review and consider in order to enhance value when preparing your business for sale.
Confirm Your Value Drivers
- Have a clear and documented business plan or strategy
- Show a positive trend in company development and future opportunities
- Have a robust reporting capability
- Audit your results and clean up your balance sheet
Diversify and De-risk
- Diversify your customer base and secure alternatives for critical vendors
- Confirm all contracts/agreements, licenses, permits are in place and current
- Address any contingent liabilities or disputes
- Show stability in your workforce
Separate the Personal
- Remove Key-Person risk (i.e., dependency on you); have a capable management team in place
- Ensure the company has a succession plan in place
- Separate yourself from the business (assets, expenses, key business relationships, non-contributing family members, etc.)
Prepare for Exit
- Articulate and embrace your reason for selling your business and make sure all owners/stakeholders are aligned
- Understand your market and set your value expectations accordingly
- Have your transaction team in place, internal and external, and be prepared
- Finalize your estate/tax planning
For some owners, selling their business under the right circumstances is more important than value. This can mean sacrificing value to leave a surviving legacy, or to sell to a “friendly” buyer or to ensure the well-being and fair treatment of employees under the new ownership.
For those owners looking to maximize value, carefully considering the above topics can have significant benefits. Not every topic is an absolute requirement or relevant in every case, but on balance, addressing these areas can help to ease concerns of potential buyers. Depending on the sophistication of the business, many of these changes can take time to implement. Thus, preparing well in advance is the key to having a desirable business to sell when the time comes.
CriticalPoint is available to discuss this with you in more detail or address any questions or concerns you may have as you begin to prepare your company for sale. To learn how CriticalPoint can help your business, please contact us.
Written By:
Mike Vehaskari
Managing Director, Investment Banking
Direct: (424) 383-5934
[email protected]
About CriticalPoint
Headquartered in Los Angeles, CriticalPoint is a leading full-service financial M&A firm that uniquely combines the best of investment banking, private capital, and valuation service offerings. CriticalPoint executes, sources, and invests in deals across a wide variety of industries for the traditionally underserved middle market. Since our founding in 2012, our mission has been to serve the needs of owners, entrepreneurs, management teams, and stakeholders with our experience, knowledge, and expert judgment, to help them realize their companies’ greatest potential. From our deep-rooted foundation in private equity and investment banking, and our devotion to deal origination and business development, combined with being entrepreneurs at heart, we believe we are differentiated and well positioned to help companies wherever they are in their life cycle.
