SHG: Selling Your Business, Part 2


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Part 2 of the Selling Your Business Series sponsored by Schwartz Heslin Group. Part 2 presents a short introduction to company valuations, why this matters, and how to maximize the value of your company in advance of a sale.

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SHG: Selling Your Business, Part 2

  1. 1. SELLING YOURBUSINESS:Part 2: What is your businessworth? Presentation Series by Schwartz Heslin Group, INC. (SHG)
  2. 2. The SYB Series Part 1: Introduction and First Steps Part 2: What is Your Company Worth Part 3: Preparing for a Sale Part 4: Your Role in the Transaction
  3. 3. You have established your goalto sell your business. Nowwhat?
  4. 4. What Buyers Look For First Sustainable growth Strong and predictable cash flow Opportunities for growth Stable sales EBITDA NOT Asset Value
  5. 5. What Buyers Look For (2) Strong revenue growth Proprietary Product/Service Long-term customer relationships Succinct customer database A CRM is a highly recommended Low customer concentration Low vendor concentration
  6. 6. What Buyers Look For (3) Barriers to entry  The higher the barriers, the more value add Established sales channels Established and efficient procedures  The business should be able to operate perfectly normally in your absence Well-maintained capital equipment Up-to-date technology
  7. 7. Buyers Don’t Want to See… Unreliable financial information  This includes inaccurate and/or poorly prepared records and financial statements  Having audited financial statements is recommended Business dependence on owner  An owner-dependent business may fall apart if sold High vendor concentration High customer concentration
  8. 8. Buyers Don’t Want to See (2) Short-term ownership  Your long-term commitment in the past signals that the enterprise is a worthwhile investment Lack of financing Tax rate uncertainty  Somethingto keep in mind as the United States moves toward increasing the capital gains tax Acute vulnerability to economic cycles
  9. 9. Valuation Methods Market Approach  Prospective deal directly compared to similar done deals Income Approach  Either DCF or capitalization of earnings method Asset Approach  Adjusts book value of assets and liabilities to reflect true economic value  Establishes baseline value excluding considerations of future profitability
  10. 10. Market Approach: Benchmarks Comparison of your company to peers  Key revenue drivers  Primary expenses  Key operating metrics  Risks  Etc.
  11. 11. Implications to Think About Market Approach  Why does your company deserve to be valued at higher multiples compared to peers? Income Approach  Maximize value by maximizing cash flow, income, and revenues in the years prior to sale Asset Approach  Maximize value with a strong, up-to-date asset pool
  12. 12. Common Challenges toValuation Unreported or underreported income Owners stubbornly focused on an arbitrary specific price Unavailable or poorly compiled financial statements  When available, they are rarely audited
  13. 13. Try to Maximize Value Report ALL revenue Focus on increasing sales Keep thorough and accurate financial records Raise the public profile of your business Implement an aggressive marketing strategy Streamline operations  Jettison unproductive assets, workers, and procedures
  14. 14. The Essential Best Practices Be friendly and easy to work with  Make it EASY for a potential buyer  Provide requested information about your business  DO NOT be stubbornly focused on an arbitrarily set price Streamline your operations Maximize sales and profitability
  15. 15. Next in the SYB Series: Part 3: Preparing for a Sale