By: RKJ Partners, LLC (Cyril Jones & Gregory Ficklin)
Business
owners, and their senior management teams, often underestimate the importance
of planning for a business sale, which, when coupled with unwarranted optimism
around transaction readiness, can often result in value being left on the negotiation
table. The underlying principle is simple: properly planned and executed business
sales lead to enhanced shareholder value.
Even
in the best of economic times, the planning and implementation of a business sale
will invariably place significant pressure on an organization's internal
resources. Careful preparation and
advanced planning can significantly increase the likelihood of a successful
business sale and have a positive effect on valuation. The following are
proactive steps a business owner should take prior to beginning the business
sale process:Recasting Financial Statements. To enable a potential buyer to gain a true sense of the profitability of a business, the financial statements must be "recast" or "adjusted" to reflect the real discretionary cash flow that would be available to a new owner. This recasting involves identifying owner and certain family member salaries, any fringe benefits that owners customarily make available to themselves, one-time or extraordinary expenses, non-cash expenses and other expense items not likely to recur or be applicable to future ownership.
Independent Valuation. An independent valuation enables a
business owner to gain a sense of a realistically achievable value for the
business and confirms in advance whether or not it makes financial sense to
sell the business given current market conditions. Properly understanding valuation at the outset
of a sale process will also prevent “leaving money on the table” by
undervaluing the company or losing qualified acquirers by seeking an
unrealistic, overvalued price.
Tax Implications. It is crucial to understand the tax implications of a
sale in advance. This will provide a realistic picture of the net after-tax
yield and help to determine the most advantageous way to structure the sale for
tax purposes.
Growth Plan. A well thought out and realistic plan for growth can
greatly enhance the value of a company. Untapped expansion opportunities equal greater
perceived value for the business in the eyes of the potential acquirer.
Addressing Key Dependencies. Two key dependency areas include
customers and employees. Customer dependency exists when a high percentage of
the company’s revenue is derived from one or a few large customers. Employee dependency exists when the business
is highly dependent or held hostage by key employees or the existing owner,
whose departure could severely impair the business. With advanced planning and focus, reducing
these dependencies can increase the marketability and value of a business.
Third Party Financing. It is important to ascertain the
likely level of financing available to an acquirer in advance. Not being armed
with this knowledge in advance can often lead to wasted time and compromises confidentiality
with unqualified acquirers.
Likely Acquirers. Advance industry and market research
can determine if it makes sense to approach certain companies. Strategic acquirers recognize the value and
synergies from gaining additional sales, territories, capabilities or
complimentary revenue centers.
Team of Professionals. Before entering the uncharted
waters of selling a business, it is imperative to select the right team. This
includes a qualified CPA, an attorney with a background in corporate
transactional work and an experienced investment banker.
Current Sales Performance. The 12-month period during which
the sales process is taking place is a critical and decisive one. If sales
performance deteriorates during this period, marketability and value will be
negatively impacted. Working with a qualified investment banker to manage the
sale process is a vital component of the sale process because it allows the
business owner to maintain focus on the business at hand.
Tackling
"Deal Killers" Early On. If there are issues that
may potentially jeopardize a transaction, a seller is ill served by “hiding his
or her head in the sand”. Eventually, these issues will surface and it is far
better to be prepared and address them at the onset of the process from a
pro-active viewpoint, rather than have to take a defensive posture when they
are independently discovered.
RKJ
Partners, LLC
(www.rkjpartners.com): Cyril Jones and Gregory Ficklin are Managing
Partners with RKJ Partners, LLC. RKJ is
a minority-owned, Atlanta, GA based investment banking firm formed to assist
lower middle market growth companies in execute transactions between $2MM and
$75MM. Specifically, RKJ provides
buy-side and sell side M&A advisory services, capital raising services and
strategic advisory services.
I just couldn’t leave your website before telling you that we truly enjoyed the unique and quality information you offer to your customers...... Will be back often to check up on new an additional posts.
ReplyDeleteHave a wonderful day!
SimplyBiz
Thank you for the compliment. We are committed to continue providing quality information to our readers. Please tell your friends and yes, do come back often.
ReplyDelete