Being Buyer Ready – A Priority for Business Owners
All business owners should have a strategic focus to grow the value of their business. While bottom line performance is a key metric, there are many objective and subject components of building value. Believe it or not, it is often the subjective components that can create the greatest opportunities for increasing value. At Sunbelt we call this strategy getting the business “Buyer Ready.” Whether a sale of the business is on the horizon or not, viewing your business with the eyes of a prospective buyer will help keep the focus on continuous value improvement.
What does it mean to be Buyer Ready? It simply means preparing your business so that a new owner could easily step in with a relatively seamless transition – including the transition of employees, customers and financial performance. Transferability is the critical value driver of a business and at the crux of being Buyer Ready. The question then becomes, how do you do it?
At Sunbelt Business Advisors of Southwest Ohio we have a team of advisors with 50+ years of experience to assist you through this process. We can develop a step-by-step plan to maximize the value and attractiveness to a potential buyer.
8 Keys to becoming Buyer Ready:
- Improved cash flow (adjusted earnings)
- Buyers who see positive and increasing cash flow will place a higher value on the business. Any owner benefits taken as expenses in the operating expenses of the business need to be removed. If it can’t be seen and proven it won’t be considered for the purposes of the business’ value.
- Strengthen and empower employees
- Buyers are looking for well-run companies with a high-quality workforce. If the company’s employees can’t operate the business without the owner, this is viewed as a significant risk to the buyer. A critical and learnable skill for owners is to delegate and resources like Aileron can assist in developing it.
- Complete and accurate financial information
- Capturing this information isn’t a necessary evil for tax purposes, but a critical planning tool for the management team. A well informed team can assist in goal setting and achievement of those goals.
- Achievable forecast and growth plan
- Potential growth is one of the easiest ways to demonstrate why a company is worthy of a higher valuation. The forecast needs to be realistic and attainable, and in sync with the growth plan.
- Diversification of customers and products
- Any concentration problems (i.e., too much revenue with too few customers) carries a high level of perceived risk. Develop and execute a strategy to broaden the customer base and/or product/service offerings
- Up-to-date policies and procedures
- Having policies and procedures isn’t enough. They need to be incorporated into management meetings and viewed as living documents, constantly being revised and updated
- Owners need to get everything out of their head and into a manual or other working document
- Continuous differentiation from competitors
- What makes your business win against the competition? If you don’t know, how can your business development efforts succeed and how can your market value be explained to a buyer?
- Curb appeal counts
- First impressions count and if the facility isn’t well maintained it can create an initial barrier to how a buyer views the business.
Over the years we’ve seen instances where business owners have been told to pay large retainers in order to prepare their business for sale. We’re talking about $20,000, $25,000 and recently $40,000! The opportunity to pay this retainer fee comesRead more…