Today there is a lot of uncertainty about the future of business. There are things you can do to prepare for an eventual sale of your company – especially now.
Many business owners are really hurt by shutdowns and reduced business. In this case, owners are wondering if they can survive. Others are busier than ever, making components needed in critical sectors while being worried about staffing and access to materials.
My thoughts are to provide a few suggestions on what has worked effectively in the past that could also end up helping your business today and in the future
Do you make all the decisions?
We often ask this of owners and a surprising number have to think about it. Many owners are so tightly involved in the day to day, or fear something will slip through the cracks, that they can’t really even take a day off or plan a vacation.
Being able to take a break suggests you have a good structure in place and a team able to keep things going while you are away.
So, think simply what would it take for a vacation? Make a list and put those things in place. There will be multiple benefits: You get a vacation. You empower your team. You show trust. You enable the crew to take ownership of getting jobs completed.
Do you have reserves?
Having financial reserves is critical to weather a storm like this.
Asking this generates strange looks from many owners, especially when it comes to personal reserves. Many pour all that they make back into the business, considering it their safest investment. This makes a lot of sense while building up, but unfortunately may not be the smartest thing when well established – especially if you are preparing to sell and retire.
Continually investing in the business means all your assets are tied up in the enterprise. If anything goes wrong with it, your future can look cloudy and even grim.
The happiest owners are those who have been able to move resources outside the business into personal investments, retirement savings, investment real estate. With resources outside the business, the owner’s future is not tied exclusively to net proceeds from the sale of the company.
A frequent refrain we’ve heard from owners is that a particular offer to purchase is too low. “It won’t support my retirement... I can make that working another three years in the business... It doesn’t recognize my years of sweat and labor.”
The owner with resources outside the business does not feel quite so trapped, and has far better options. An offer to purchase can be viewed differently.
One client in recent years summed it up this way: “I looked on the web and found that time is not for sale.” But he also had done advance work, and had resources outside the business. He got to sell the company and also to have more time to enjoy life.
Would you buy your own business?
Step back and put yourselves in the buyer’s shoes. You see nothing but upside; the buyer - a strategic or private equity buyer – sees all of the risks. The risks include no management team, unclear financials, no formal proactive sales effort.
There usually is an upside for a business going through a transaction. But the upside requires a change in operations that could be done, but will require adjustments to achieve. This in itself is a risk, since it requires an additional investment to achieve.
The more you do to alleviate risks now, the better the company will look to a buyer group. Cutting down on the risks also will benefit you as the current owner – you can take a vacation, you have less lumpy sales, you have a team to lean on.
Consider the example given above. A do it all owner who handles every detail of a business is creating dependence. This owner is creating a huge risk for a buyer group which will need to put a new manager in place, retain the staff while orienting them to a different style of operation, re-gear the company to more actively seeking growth.
A business that is dependent on the owner is not as saleable, and will not achieve as high a price. If you were looking at your business, would it look dependent on you to continue operating?
Use time wisely
If your sale horizon is a ways off, consider using this current crisis period to make plans and implement adjustments. This is a positive step that you, as owner, can make.
Find things that will make your company operate better for you now while also opening up opportunity for the staff to take a greater stake in the future.
Don’t be blinded by excuses or the it-can-wait syndrome.
Acting now will make your business life better. It will also increase the value of your business in the months ahead.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
Prepare for the Market Rebound
For many business owners, the economic effects of the COVID-19 pandemic have been devastating – especially for those who were planning to sell their businesses.
Using Downtime to Add Value
As business owners are working to process the impact of COVID-19, we’re looking at how it will affect M&A. The good news is that many companies and private equity firms have been doing well for year
Are Buyers Still in the Market?
We believe that mergers and acquisitions will continue once the current crisis ends...based on the volume of inquiries from private equity funds, search funds and well-funded individual buyers.
Use the Threat to Better Prepare
Today there is a lot of uncertainty about the future of business...there are things you can do to prepare for an eventual sale of your company– especially now.
Crisis Shows Ripple Effect of Business
Our focus at BTS is on small companies that are the backbone of the economy...This gives us exceptional insight into what it is like to be owner-operators.
Dealing with risks in a company sale
The passing last week of Harvard Business School professor Clayton Christensen – famous for his theory of business disruption - is a good time to consider business risk.
M&A Advisor Tip: Earnouts Can Break a Deadlock
Earnouts can be used to address a perception of risk faced by a buyer. They also are used to bridge a valuation gap between a buyer and a seller.
Changes by owners helped a sale
Owners considering selling can look at the experience of a N.H. company for ideas of what to do to increase their chances for a good transition.
Advisor Tip: Don’t lose your focus
Don't let those future plans distract you from what's going on today.
Growth Methods Used by Buyers
We often hear from founders who feel they have hit the ceiling with what they can do with their companies. Buyer groups in the market see this as an opportunity.
Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.