When you’re considering selling a business, it’s important to consider the overall health of your company and determine how your business may look to potential investors before going to market with an M&A advisory. Key acquisition attributes must be considered in order to attract quality buyers willing to pay top dollar.
Here are some key factors to consider in order to make your business as attractive as possible to drive value.
Increase Profitability — Are there excessive or unnecessary expenses that you simply haven’t eliminated yet, either in the cost of goods sold (COGS) or in operating expenses? Have you exhausted all opportunities to increase your profit margins? Doing a little legwork now can lead to exponential returns on even small increases in profits. Why? Most buyers are willing to pay a multiple of earnings, so the higher the earning the higher the value.
Have Multiple Growth Opportunities Identified — Buyers aren’t looking for a stagnant business. They want a company with a strong idea of where it’s headed and one way to appeal to buyers is to identify growth areas that they can exploit. Are there ancillary sales channels available? Complementary product or service offerings that haven’t been fully explored? What about leveraging new technologies? Are there geographic expansion opportunities nationally or abroad? Identifying these opportunities for growth will stimulate the buyer’s interest, and the more opportunities you and can put validate or prove out, the better.
Have A Succession Plan — Once you leave the company, who is there within your ranks to make sure that the business will continue to run smoothly? You need to make sure that you have managers who are able to keep the company moving forward. You might think that the new owners will be interested in installing their own people as soon as possible, but most businesses are purchased by acquirers from outside the industry. They aren’t interested in running the company; they’re interested in looking for opportunities for growth while the company runs itself. Having key management infrastructure in place is one of the most important factors for investors and strategic acquirers.
Specialization — What makes your company special? That’s the question a mergers and acquisitions company like Trinity Transaction Advisory will help you figure out. Is your company a recognized leader? Does your company hold any intellectual property such as patents, copyrights, or trade secrets? What is the “secret sauce” that makes the company special and how can it be exploited in a growth model? Potential buyers are asking these questions, so it’s important to have an answer for them that will make them jump at the opportunity to buy your business.
Establish a recurring revenue model — If possible, secure sales that are recurring (as opposed to one-time revenue transactions). In most cases, the more recurring revenue you have, the higher the price-earnings ratio (P/E) multiple. It’s not uncommon for strategic acquirers to pay as much as a 10-times earnings multiple for businesses with a mostly recurring revenue model, like insurance companies. On the other hand, retail establishments typically net between 2-3 times multiple since customers are typically making one-time purchases and must be convinced to buy again.
Have Several Years Of Clean Financials — No matter how excited a buyer is to purchase your business, it’s not going to happen if the deal doesn’t jump the rest of the hurdles…CPA’s, bankers, partners, and their co-investors, just to name a few. If your books are sloppy or if there are red flags, the deal will likely fail. Getting your books in order will make it more likely that a deal will occur.
While you can take many of these steps on your own, we’d love to help you walk through the process so that all possible opportunities can be identified. Contact Trinity Transaction Advisory and we can help provide a no obligation Market Feasibility Analysis to help determine how marketable your company is.