Making Your Business Attractive to Buyers
By Trip Holmes
Recently, one of my longtime referral partners copied me on a note to a prospective client and expressed our experience and value of services:
“We believe Trip will be a great resource for you going forward as you begin to take the next steps for valuing the business and pulling together the eventual sale. He has been working as a business consultant and providing investment banking services to the owners of privately-owned companies since 1984. He’s also been key to enhancing the value of businesses prior to their sale, maximizing the total return for the owners.”
Needless to say, I enjoyed reading that, and seeing it validate everything I’ve done—all the wins, even the losses—that has helped me learn over 35 years how to treat people and achieve results beyond my clients’ wildest expectations. But don’t take this to mean that I do everything—working on selling a business is truly a collaboration and a team endeavor with the client’s CPA, business banker, estate planner, attorneys, and other key advisors.
Let’s talk about enhancing value and maximizing the return for family business owners. To get the most money and get the most people interested in buying your business, you need to plan in advance. This is where we do our best work on the planning side of our business, setting up owners for greater success, months and years ahead of the actual exit transaction.
It’s Not About You
The success of many companies is built on charisma, strategy, and ideas of the owner or founding partners. While that’s great and means success on many levels, it doesn’t necessarily have any value to a potential buyer. If you’re leaving, the company had better be able to run without you. It’s critical to have good management, operations, attention to risk, and shared responsibility across the organization. The success can’t all be attributed to the founder or a few family members.
It’s About Management and Employees
Management and key performers among your employees are pivotal to bringing value to your sale. Buyers invest in companies with sound management in place. And even when the buyer is active in the operations of a business, they don’t want to make the company overly reliant on their ideas and connections. Also key to this concept is succession planning—you need to not only have a strong team in place, but also people who are constantly being groomed for leadership positions, the greatest guarantee to business continuity.
It’s About Your Place in the Market
Nobody wants to invest in a “me, too” business. You have to have a differentiator—in the case of my recent clients who successfully sold their road paving and repair business, a big differentiator is that they had their own plant and could thus supply their own material for their jobs. They were vertically integrated, as opposed to being dependent on the service and margins dictated by suppliers most of their competitors dealt with, and this made their company extremely attractive. Whether it’s this type of stance or having a technology focus that allows you to stay one step ahead of your competition, you have to find and exploit the attributes that make you stand out in your market.
It’s About Being a Fundamentalist
This should go without saying, but it’s good to always remind ourselves of the importance of the financials. When folks are looking at your business, you can drive up their valuation by really paying attention to your business fundamentals: diversified, recurring streams of revenue, along with rigorous attention paid to expenses. The more profitable and efficient you are, the more value you should expect and deserve!
Bringing It All Together
Investors want to get on board with a successful business that’s built with stable management and employees, clear differentiators with a positive industry outlook for the future.
If you’ve realized that you need some help in any of these areas, we enjoy helping family business owners shore up their planning and operations with the exit in mind. When you’re looking to sell your business, your exit is someone else’s new beginning, and to get the highest value for you and your family, you need to set that next owner up for at least the same level of success you’ve achieved.
Contact Sabre Capital today to get a conversation started.