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Top Line vs. Bottom Line Growth: What Do Business Buyers Look For?

By Generational Equity

Top Line vs Bottom Line

It is important that business owners begin to think like business buyers long before they reach the point of approaching them with their companies as part of the exit process.


Because some growth strategies could backfire on you and actually hurt your standing with some buyers.

Here is a quote that I heard recently:

Top line = Vanity…Bottom line = Sanity!

So simple yet so profound, especially when it comes to buyers. You see, far too often we encounter sellers that have focused for years on the company’s revenue growth with little concern for the bottom line.

Entrepreneurs are quite often their company’s best salesperson. But too often probably not their best cost accountant. Trust me, buyers are less concerned with your 10% growth per year than they are with the fact that during the same timeframe your profit margins have eroded at a 15% annual rate.

This is why it is vital to hire an M&A advisory firm like Generational Equity long before you decide to exit. We do two things at the outset that are critical:

  1. We recast your historical financials (usually back three years)
  2. We analyze your profit margins, comparing the business to industry norms

Preparing your bottom line before exiting your business

Recasting simply allows us to remove any items from your income statement (and balance sheet) that are not part of the normal operations of your business. These can include dozens of things and vary from client to client.

Since most business owners have worked with their accountants for years to legally suppress profits, recasting gives us an accurate starting point for bottom line analysis. Without doing this, you could significantly under-value your company when you decide to exit.

Secondly, after recasting we compare the clients’ profit margins to industry norms, looking for any anomalies that would suggest a need for improvement. This can be eye-opening for many of our clients.

Typically, what we find is that very few have ever analyzed their profit margins by client or product line. Often clients are building revenue at the sake of profitability, and our margin analysis can reveal if this is so.

Why are these steps so important when exiting a business?

Both recasting and analyzing your profit margins are vitally important parts of your exit planning process because these are what buyers will do when they open due diligence on your company. If they find recasting that is in your favor, do you think they will tell you? Nope. However, you can bet if they find your margins are low or dropping that they will definitely bring that up.

Now, you may have valid reasons for your margins being lower than industry norms in a given timeframe; however, if you are not prepared to explain why, most buyers will certainly adjust their offers for your business (and the adjustment won’t be an increase).

Certainly, there are lots of strategies to grow a company and most of them will, over time, enhance your value. However, many will not and it is these bad strategies you must avoid.

Want to learn how before you prepare your exit?

Set aside some time to attend one of our exit planning conferences that we hold around the country. The hours you invest at one of our meetings will provide the best return you have had in years at any conference you have attended. You will learn a great deal about building a truly buyer ready business, including strategies revolving around top AND bottom line growth.

For more information use the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.

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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
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
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Jay Dinnison, Owner of Sharpe Mixers
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
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
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 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.
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
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Karen S. Williams, CFO, BW Manufacturing
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Michael J Polarek, President, Paragon Packaging
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Michael J Polarek, President, Paragon Packaging
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Karen S. Williams, CFO, BW Manufacturing
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
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 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.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
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Robert Evans, President and CEO of Mealtracker Dietary Software
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Larry Moore, Owner, A Company Portable Restrooms
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Pete L.
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
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Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
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
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
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms