We are about halfway through January and if you are like most folks, you are starting to struggle with keeping your 2018 New Year’s Resolutions (NYRs). Whatever your personal and professional NYRs were, we hope that you are extremely successful in reaching those goals!
One NYR we hope every business owner takes to heart and works on diligently in 2018 is the goal of building a “buyer ready” business, or at least getting on the path to this.
Why do we stress this?
Because it is far better for you to exit a business when you want to rather than wait for external circumstances, many of which are well beyond your control, force you to. These scenarios are similar to “fire sales” which according to Investopedia means:
Selling goods or assets at heavily discounted prices. Fire sale originally referred to the discount sale of goods that were damaged by fire. Now it more commonly refers to any sale where the seller is in financial distress. In the context of the financial markets, a fire sale refers to a situation where securities that are trading well below their intrinsic value.
So by its very definition, you want to avoid a fire sale because the buyer is ultimately in control of not just the valuation, but also the terms and conditions of the sale. Which is bad news indeed!
How do you control your exit?
By creating a plan for a buyer ready business and by taking steps in advance of going to market to reduce the risk associated with your company.
How do you do that?
The good news is that you don’t need a PhD or even an MBA to effectively prepare and build a buyer ready business. If you focus on these three areas, you will be making great strides in assuring buyers that your company has a long-term future:
Now granted, each of these will require your time to produce results. But trust us, based on our years and years of experience, if you begin developing a middle management team and delegating key decisions to them, you will improve your standing in the eyes of buyers.
If you drill into the sources of your revenue and create incentives for your sales team to bring new clients on board so none of your clients are over 20% of your revenue, you will reduce the risk associated with your opportunity.
And finally, make the investment in people and software to ensure that you have no gaps in your accounting system. Produce monthly P&Ls and balance sheets that all roll up into a year-end process of reporting that is clean and accurate. By doing this, you will significantly enhance your company’s salability.
OK sounds simple so far…
Now let’s talk about the 800-pound gorilla in the room: Most entrepreneurs love the excitement of founding and growing an enterprise. However, what they don’t enjoy is taking a $5 million revenue company to $25 or $50 million because achieving that sort of growth will definitely require you to focus on the three areas listed above.
But is it worth it?
Absolutely! The difference in valuation between two companies doing $5 million in revenue, in the same industry, where one is “buyer ready” and the other is not can be extreme. And not only the value paid, the structure of the deal can vary dramatically too. If your business is not buyer ready, you may be saddled with contingent payments in the form of an earnout, which may lock you in for 3-5 years working for the new owner to reach the company’s goals.
A great way to learn more about how buyers think about risk and how to mitigate risk associated with your business is to attend a Generational Equity exit planning conference. These highly educational meetings are presented by serial entrepreneurs for other serial entrepreneurs.
Trust me, you will learn a significant amount about exit strategies, company growth, and what it takes to build a buyer ready business by attending. Here is what a few of our clients feel about the conference they attended:
If you are interested in expanding your understanding of how to make your company more attractive to buyers, contact us at 972-232-1121, or reach out to us on our contact page and we will be in touch. If you would like to see if we are going to be holding a conference in your area, please follow this link to look at our schedule.
And good luck with all your New Year’s Resolutions, but especially the really important one: Building a buyer ready business.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2018 Generational Equity, LLC. All Rights Reserved.
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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