Most people start a business with dual financial objectives: making money and creating an asset (equity in the business) that they can eventually sell. That’s what you wanted – right?
Well, the reality is that over 70% of businesses that go to market don’t sell: meaning they don’t get a return on the biggest asset they own. Here’s what the 30% that do sell do first so that they can sell their most valuable asset: they assess the company’s value…to a buyer!
Think about it – you have the majority of your net worth locked in your company. Even your stockbroker would tell you to diversify your financial portfolio to reduce your risks. Now you’re thinking like an investor…which you are in the company you own.
When you sell, you want access to that money (the value!) you’ve built up so you can have the kind of next act or retirement you’ve always dreamed of.
I was shocked when I entered the M&A profession to hear that only 1 in 4 businesses that went to market actually sold. I quickly learned why it was true.
What I also discovered was that with the time (1-3 years) and the proper planning, a large percentage of those companies that didn’t sell (DESPITE THE FACT THEY WERE SUCCESSFUL) could have been positioned for a sale; and those companies that did sell could have sold for a lot more.
It’s very frustrating seeing company owners watch the value of their investment in their business melt away because they can’t sell their business. It doesn’t have to be that way. And it’s not what you think: these companies don’t sell because brokers aren’t doing a good job. It’s because owners like you weren’t given the inside track on what buyers look for long before putting the company on the market.
The Role of Business Buyers
Who determines value in a business? Business Buyers do. Business Buyers want a return on their investment, just like you do. They know what drives profits in a company. And, perhaps more importantly, they know what makes a company’s performance sustainable when a company is transferred to a new owner. Each buyer type is looking for different attributes in a target company.
Having worked with hundreds of buyers I know what each type of buyer is looking for in an acquisition and, as a result, I’ve defined 16 core value drivers. These value drivers are the major functional areas of a company and are its very foundation. Improving these value drivers allows the company to make more money and increase its value.
Create a Roadmap to make more Money and Increase the Value of Your Business
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To increase the value of your company and position it for an exit you need to assess the strengths and weaknesses of your value drivers, know what the different buyer types are looking for in an acquisition, and match your company with a buyer type. This process should function as a starting point for you to develop a “Roadmap” to take you from where you are now (Point A) to where you want (or need) to be (Point B)
Consider that, with a good plan, by improving your value drivers you’re affecting both the multiplier and the EBITDA in the multiple of earnings valuation methodology, and it is very possible for you to double your business value in a 2 year period! Not thinking of selling any time soon? How about making more money and having some free time to function as a true CEO?
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