Monday, February 10, 2014

6 little things that make a big difference to the value of your company

With the Sochi Olympic Games taking place this month, it is interesting to reflect back on some of the big events of the 2010 Olympic Games in Vancouver.

In the Men’s Downhill race at Whistler, for example, the winning time of 1:54:31 was posted by Didier Défago of Switzerland. The time among medalists was the closest in Olympic history, and while Mario Scheiber of Austria posted a time of 1:54:52 – just two tenths of a second slower than Défago – he finished out of the medals in fourth place.

In ski racing, one fifth of a second can be lost in the tiniest of miscalculations.  And when it comes to selling your business, markets can be equally cruel. Get everything right, and you can successfully sell your business for a premium. Misjudge a couple of minor details and a buyer can walk, leaving you with nothing.

Here is a list of six little details to get right before you put your business on the market:
1. Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your company. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell. 

2. Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping. 

3. Stop using your company as an ATM.  Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks. 

4. Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin, she will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun. 

5. If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” stipulating that the obligations of the contract “survive” the change of ownership of your company. That way, your customers can’t use the sale of your company to wiggle out of their commitments to your business. Have a lawyer paper the language to ensure it has teeth in your jurisdiction. 

6. Talk to an M&A transaction advisor like the MAXIMA Group. Our various industry connections and experience running deals for all kinds of companies in all kinds of economic environments can give you a lot of insight about how potential buyers will see value in your company. 

Like competing in the Olympics, selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner. Fumble your preparation, and you could end up out of the medals. 


Wondering if you have a sellable business? Contact the MAXIMA Group for a consultation. We focus on privately held companies with annual revenues of $3 million to $60 million. We also advise larger public and private companies on buy-side engagements. 

How to sell my business for lowest cost

When business owners arrive at the inevitable “intersection of decision” to sell their business versus shutting it down the vast majority genuinely desire to have the business carry on while cashing out for all their hard work. A few discreet conversations with other business owners and trusted advisors leads to the decision to engage a professional advisor.

After talking with a few transaction advisors and/or business brokers, the business owner is often somewhat surprised at the fees involved in successfully preparing, working, and closing the sale. Why do I have to pay someone so much money to sell a business I have worked so long and hard to build? 

Our 15 + years of experience has taught us rather than arm wrestle with the advisor to get the lowest fees, you may want to engage an advisor that can achieve the best deal structure. Any business owner would happily pay a dollar to receive many dollars back. It all comes down to how you view the return on the investment.

Consider the business owner that engages a professional team to present his business best foot forward: The professional advisor ensures the financials get reviewed and cleaned up, the corporate documentation is updated and current, the operations get reviewed for strengths and weaknesses, develop a valid and defensible valuation, represent the business in a well-documented Confidential Information Memorandum, discreetly and confidentially contact strategic buyers in a broad marketplace, then negotiate an overall deal that fairly compensated ownership with terms and conditions that achieved majority of the owners priorities, and manages the whole process. The fees involved to complete that process provide the owner with a Return on Investment of a successfully completed transaction.  What is that worth to you?