Get Your House In Order
Tips To Maximize Value
David Iwinski Jr.
Get Your House In Order
Tips To Maximize Value
After 30 years doing global business, with the last 8 years focused on international mergers and acquisitions, there are a few common aspects to preparing a small or mid-sized business for acquisition that can greatly enhance the potential market value of the enterprise and the speed of the transaction. Often, once a client has been signed, we require months of prep work getting the business in shape to be presented, but there are many things that owners can do on their own before they consult acquisition specialists.
Clean up the books
The first and most obvious place to start (and often the one that takes the most time to resolve) is to get your books in order. Often small and midsize firms have a history of sliding personal expenses onto the business side of the ledger, as well as taking actions to minimize profitability to reduce tax burden. If you’re running your own solo operation, that may be a rational strategy, but when it’s time to find a buyer, a steady history of low earnings does not get you maximum value. Strip out the personal expenses and structure your books to maximize the true profitability of your enterprise.
Prepare solid answers for down years
Everybody has a spot on their growth chart where the steady line of upward growth dips down. The question is not if you will be asked about this year (or two) but when a prospective buyer is going to grill you on what happened. Perhaps they are genuinely curious, or perhaps they want you to be on the defensive when it comes time for price negotiations. In any case, your best position is to have a thoughtful and logical answer for a weak year and, with some luck, be able to connect a brief downturn to external events that were beyond your control.
Scrub off lousy customers
We all have customers that frustrate us but that we keep on board for legacy reasons or for the trickle of revenue they provide. However, if we look at it rationally, often the resource dedicated to maintaining these accounts far exceeds the value they deliver. If the resources that go into keeping these difficult customers happy were redeployed in support of your greatest growth opportunities, it would paint a much better picture of your business potential to a slate of possible buyers.
Resolve pending litigation
From time to time, despite our best efforts, most business owners will face claims and litigation. Sometimes these are based on bona fide disputes, and sometimes the validity of the claims is questionable. Potential buyers view pending litigation with extreme skepticism, particularly international acquirers. The United States has a reputation for being highly litigious and also for settlements occasionally veering into stratospheric amounts. Perfectly good transactions may be stopped dead because of the uncertainty of pending litigation. Better to grit your teeth, find a settlement and get it off your plate, than try to explain to someone why they should buy a company that is in court.
Clean up the physical plant
It is one of the first lessons that we hear from our parents, but a true one nonetheless: first impressions count. If you have a factory or production facility, invest some time and resource in getting things cleaned up and power washed. The judicious application of some paint and new light bulbs can make a dark and gloomy production floor more welcoming. In particular, pay close attention to all bathrooms, including those on the production floor. When I do company audits overseas for potential buyers, I can normally tell what range of approval I will give the factory by ducking into the bathroom facilities for the workers. Companies that tend to keep things clean and sanitary will normally have that reflected in the general workspace.
All of the above issues are things that many small and mid-size businesses suffer from on an on-going basis, and it is often hard to find the time and effort to resolve these when the pressing business of day-to-day work is always upon us. However, handling these items can pay off handsomely when preparing to be acquired, as they strip away reasons for a buyer to grind down and chisel away at your perceived value.
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