About every eight years or so our economy goes through a downturn/correction. How old will you be when the next one ends? Do you have a well-designed exit plan?
Smart entrepreneurs are staging the business for possible sale now, because they realize if they wait too long, the consequences may be very negative. The value you may receive IF your business can be sold will shift substantially if you have proactively started to prepare 2-3 years in advance.
The formula is simple, in 2017 and beyond, more and more companies go on the market for sale, only the best built companies will sell for the highest price. Is your family’s future going to be by design or by luck?
What are Private Equity Groups or Strategic Buyers looking for? If you want a chance to retire, buyers will start peaking under the rocks. Below are some rocks they will look under:
- How has your business performed financially over the last three years?
- How well will the business run without the owner?
- How strong is your management team?
- How effective are your systems / processes?
- How effective is your marketing and/or sales compared to your competition?
- What is your growth potential?
- What is your industry forecast?
- How diversified is your customer base and retention?
- What is your cost and margin structure?
- Customer distribution: do you only have a few customers that represent a large portion of company revenues?
- What is the condition and value of your building and/or equipment?
- Are there any issue with working capital (e.g., accounts receivable and or inventory)?
A few other things to keep in mind are: a) You will be better off if you sell before you have to. b) Know your business. Buyers hate surprises and be willing to walk away. c) Remember strategic buyers may often pay a higher multiple, but private equity groups will usually ask owners to stay on a while.
One other critical thing to consider is that business owners with great companies have options. “Years back, owners would either have to own their companies forever (and leave it to the next generation) or sell to their competitor (whom they did not like). Today, there are many different options for liquidity including ESOPs, Management Buyouts, a buyout between shareholders, Private Equity minority recapitalization, Private Equity majority sale, and a sale to a strategic buyer,” says Jack DiFranco, Managing Director with BeaconView Advisors, an Investment Banking advisor to mid-market companies.
It is never too early to start preparing. A great first step for you is to assemble your outside team of experts NOW. Experts that have facilitated hundreds of family owned and privately owned business transitions will help you design a plan that supports your families future.
Why wait, it is never too early to start the process.