In the SMB community, the environment for acquiring and selling businesses is starting to rejuvenate. Usually entrepreneurs fall into two categories: a) leaders that are well prepared for someone to look under the covers so to speak; and b) leaders that want to sell their company for a maximum valuation but cannot because of the company’s current infrastructure. If you are thinking of selling your company, either today, next year, or in the next five years, it is important to evaluate your internal processes and prepare yourself and the business for a potential transaction.
The most common question that our clients ask us is: What is the best way for us to prepare for our eventual exit from this business? Although each company’s strategy will have unique identifiers such as industry, personal goals, etc., there are a few ubiquitous to-dos:
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- Leverage Artificial Intelligence to Enhance Efficiency and Streamline Cost Savings: Companies are learning how to make themselves more profitable using artificial intelligence to streamline manual tasks and hand-offs as well as leveraging technology to streamline payroll costs. By scrutinizing your current processes and procedures, it will allow you to show that not only are you industry leaders, you are also forward thinking and expert in your industry. This will also yield “bonus points” during the due diligence processes when prospects project their future profitability with your company.
- Be Able to Take a Vacation: In our experience, one of the largest reasons that potential acquisitions fall through is that so much of the business is reliant on the owner or partners of the seller. For a potential buyer, this is a big weakness because they know that the more successful they are integrating your company into their infrastructure, the easier it will be to yield synergies. It also will allow you more flexibility to not have to stay on post-transaction and free you up to pursue the personal goals that you have instead of having your purchase price of the company hinge upon your ability to increase revenue for as long as five years post-transaction.
- Focus on Process: Automation of anything that you do — from manufacturing a car to acquiring a client from your website — is very attractive to a prospective buyer. A company is inherently more valuable when there’s a clear path to revenue generation. Value continues to increase when procedures ensure maintained quality and long-term customer retention. Key Performance Indicators (KPIs) that track and monitor performance on efficiency and customer-retention quantify the value you bring to your customers on a regular basis. And a potential acquirer will feel better knowing that there is established brand loyalty in your brand and that the transition of ownership can be relatively seamless once the transaction is complete.
- Planning Ahead to Plot Your Own Sale: The best time to plan your sale is today. Even if you’re not thinking of ever selling your company, you should have the right infrastructure in place so if the opportunity arises and your plan changes, you have the right people in place and can act quickly. Entrepreneurs have peace of mind knowing that critical transactions have been scrutinized and optimized to the company’s benefit when team members in accounting, legal, financial planning, and technology departments also have M&A experience. Plant the seeds now with the right advisors so that the knowledge of your industry and your optimal exit strategy can be continually reviewed.
Finding the right partner or purchaser doesn’t happen overnight. At the outset, most business owners are looking to make a difference in their marketplace and not necessarily looking to cash out. Incorporating your final chapter into your starting phase of your company allows you to more fully maximize the valuation of your company and the ability to fulfill all your personal goals and dreams.
Take-away: If you are looking for the right finance partner to handle both your core processes and your yet-to-be-determined exit strategy, reach out to Brian at info@acceleratingcfo.com.