by Dave Clough, mPower Advisors
The more your business revolves around you, the more risk buyers see.
“If you can’t take a vacation without either checking in once or twice a day or your business gets derailed,” says Dave Clough of mPower Advisors, “then your business is not ready for an ownership transition.” The less the owner has to be involved in the daily operations the more attractive the busines is to a buyer.
Work yourself out of the business by developing an experienced, empowered management team, and repeatable processes that depend less on key individuals. The less the business is dependent on you and your knowledge or relationships, the less risk buyers face in a transition. And less risk translates to increased salability and potentially a higher sale price.
If you put yourself in the buyer’s shoes, how would you want the company to operate. You would probably want the owner to introduce you to key people saying for example, “This is Janet, and she is our financial guru. She needs very little of my help and provides me with weekly data that shows a snapshot of our financial health. You’ll need just 2 hours to understand her full job function.” That would help confirm your purchase decision. On the other hand, if as the prospective buyer you find that the owner puts in 60-80 hours a week and has to continually oversee all activities or fix lower level issues that arise, you would be less inclined to even make an offer. As with buying a house, a fixer-upper does not attract premium offers.
Here are some red flags for a buyer:
A prospective buyer has less risk if the current owner is the visionary and chief strategist, managing the company via a dashboard of metrics.
Assuming that you want a premium price, yet you are deeply in the operations of the business, what do you do?
Taking these steps will improve your current situation and make your business more attractive to a buyer.
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Case Studies
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.