Whenever owners ask us “What is the first step in the Generational Equity M&A process?” our answer is always the same – a company evaluation.
Think about it – would you put your house up for sale without a professional valuation? Of course not. Then why would you treat your most important asset any differently? A comprehensive valuation is the essential first step, as it gives you an initial estimate of much you should expect for the hours of dedication you put into your company.
That’s why at Generational Equity, we make business valuation the first step in a successful exit strategy. Determining a company’s value is not formulaic – it is both an art and a science. Your financial records and projected growth statistics are key components, but it is also about interpreting these in the context of your business, market and industry.
Don’t believe those that say you can only “ballpark” the true value of a business. With the right professional advice, you can determine a potential measure of value in your company.
Find out more in our free-to-download white paper Selling a Business: Part 1 – The Evaluation.
Once you’ve established your company’s current business enterprise value, you have to ask yourself another question: Is that enough? Most company owners will find that there is plenty of hidden value to be uncovered in their businesses. It is simply a matter of knowing how to build your valuation before the time comes to exit.
Here we discuss six strategies on how to increase value in a company:
Let’s start at the beginning, as recasting financials is a critical part of the valuation process. What does this mean? Put simply, it’s removing or adjusting items on your financial statements that do not relate to ongoing business. These could be as simple as one-time expenses or discretionary costs that new ownership would most likely not expense.
We strongly recommend hiring an M&A professional to dig into your financials and recast these to reflect the true value of your company. Buyers are interested in your business’s future, so don’t get off on the wrong foot by understating your company’s profitability.
It’s not always enough to demonstrate your business has a lot of revenue coming in – it is also how that revenue is coming in. A company that has several active annual contracts for a steady stream of income is more valuable than one that relies on one-off payments or fluctuates depending on the month. Your aim is to demonstrate to buyers that you have a steady stream of revenue coming in that your business can consistently rely on.
Of course, a river is better than a stream, but only if it doesn’t dry up every couple of months!
We’ve now established how buyers prefer revenue to enter your business – now it’s time to focus on the who. Don’t become reliant on a couple of high-value customers as the foundation of your business. This is an immediate red flag for buyers, who will be worried at the effect of losing a key customer down the road would have on your company’s growth.
Plus, having numerous customers strengthens your position, offering you several avenues to increase revenue going forward.
You know how your business works inside out, right? The processes you’ve applied since the day you opened your doors have helped your company grow to where it is today. But, it’s vital that when you exit your business, those processes don’t exit with you.
Document every essential process that has built the foundations of your company. With them, buyers will understand how to maintain your upward trajectory, even if they are strangers to your industry.
Your processes would be nothing without staff to carry them out. So, it is important to identify and train key employees that allow your business to function seamlessly, whether you’re on site or not. The more effectively trained they are, the more valuable they’ll appear and be to prospective buyers.
And when we say loyal, we mean loyal to your company, not to you. A healthy mix of both is the ideal, but a buyer will want to be sure these folks will stick around after the acquisition.
Your intangible assets set your business apart from all others, so you must leverage them to improve its valuation. By their very definition, intangible assets (also known as off-balance sheet assets) are impossible to apply individual values to.
This is because an intangible asset will be worth more to one buyer than another. So, let them do the hard work of determining how much these are worth, and use their conclusions to find the optimal valuation.
And this is really key to understand: Ultimately the actual value of your business is what a willing and informed buyer will pay for it. The business enterprise value that we determine via our evaluation process is simply a snapshot in time and a starting point. Our deal teams are very skilled at finding and negotiating with “optimal” buyers for our clients; buyers that are willing to pay a premium over and above any value we place on a business.
We hope these techniques help you increase the value of your business before you place it on the market. But this is only a starting point. You can discover much more at our complimentary executive conferences, which are held across North America. These powerful insights into the M&A process will explain how you should value a business, what buyers are looking for, and more methods to improve your company’s valuation.
In just a few short hours, you’ll understand how to achieve the optimal return for your business, from the initial evaluation to closing the deal.
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, 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
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
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
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
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
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
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
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
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
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.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
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
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.
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
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.
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.
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.
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
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
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