As we come out of the pandemic and the economy ramps up, business owners are starting to consider selling their companies. You may be one of them.
It’d be hard to blame you if you were. The market is fairly hot right now. Businesses are being sold for good prices, and those that performed well during, or have emerged with strength coming out of, the pandemic are in high demand.
But before you bring your business to market, let’s take a look at the businesses that are being sold.
The ones that command relatively high prices have something in common. They’re strongly positioned for sale. Their risks are reduced. The factors that would reduce their value in the eyes of prospective buyers have been eliminated or greatly mitigated.
Just some of the key factors that affect a business’s valuation are:
- Level of dependence on the business owner
- Strength and retention of the management team
- Customer and key supplier concentration
- Competitive positioning and barriers to entry
- Recurring revenue
- Quality of financial performance reporting and forecasting
It’s important to take the time to position your business to command the highest price at sale.
One or two years of extra time taken to improve problem areas can result in a dramatically higher sale price for your business.
Not convinced? Check out this case study where one of our clients sold their business after doubling their value in just two years.
It may be that you want to take your business to market, but aren’t yet in a position to sell at the high valuation you’re hoping for.
Sure, you could sell it now. But what if you first took the time to close the gaps, and otherwise reduce perceived risks? What would that do to your business’ sale value?
Looking at your business through the lens of a prospective buyer enables you (in an unbiased way) to see the shortcomings and where there are risks in your business that a buyer would use to discount the valuation – and provide ample opportunity to address them. Our NextLevel “Desired State Roadmap” approach enables just that to help companies build value pre-exit.
Turn your value reducers into value drivers.
Often there are one or two main issues that have an outsized impact on the value of the business. To tackle those issues can take several months or a year or more, but the ROI on those efforts can be tremendous. That’s why planning for a sale well in advance can pay off so significantly.
What does this transformation look like? Here are a couple of additional examples of how NextLevel clients flipped risks and liabilities into value drivers that led to successful exits:
- The sole owner of a home equipment manufacturer had unsuccessfully attempted to sell his business before addressing key initiatives that drove value creation. Improvements in financial operations, inventory management, and an executable growth strategy led to a sale yielding 20x his original purchase price.
- The owners of a closely-held financial services firm wanted to sell the company. But first they needed to improve the company’s financial performance by strengthening their finance team and investing in critical systems and process improvements. The resulting improved performance and profitability eventually led to a successful management buyout.
If you haven’t conducted an unbiased analysis it may be worth holding off taking your business to market until you can make sure it’s positioned strongly for sale.
If you need an unbiased outside perspective to help you turn your weaknesses into value drivers, contact us today.