Building Value When Exiting Your Business

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Virtually every business owner will eventually need to exit their business—whether by a sale to an outside party, leaving it to a family member or closing it down. The last of those three options is generally not the preferred route, and it’s rare to have both an interested and qualified family member available to pass on the business to. That leaves going through a sale process, which is often the most important transaction of an owner’s life and the one shot they have of possibly creating “happily ever after” wealth.

What can an owner do to ensure that they get maximum value for their business when they do go to sell? Plenty, as it turns out. One thing I have learned during the 11 years I’ve been an investment banker selling pet companies is that the vast majority of businesses are not fully prepared for a sale when they contact us. They might have strong revenue, unique products, a growing business, but there are usually some key pieces missing.

While no business is ever perfect, these are the areas where I see the biggest need for improvement before an owner can maximize the price they will receive for their company:

Accounting/Financial Reporting: Can you produce comprehensive, accurate and insightful financial reports (income statement, balance sheet, etc.) in a consistent and timely fashion?

Being able to report historical sales and profitability by month for the last several years as well as projections for the next several is expected in order to receive premium value. If your company cannot produce this information, you need to immediately begin the process of implementing a more robust accounting system.

It’s very difficult to know what your company is truly worth when you don’t keep accurate books and records. Invest in a sophisticated accounting system and a competent accountant—I can assure you that it will be worth it!

Personnel: Do you have the right people and are they in the right places?

Companies are ultimately about the people that work there and needless to say, the more good people you have the more valuable it will be. Exceptional employees—especially in a revenue-generating role—can significantly heighten buyer interest.

If you have been carrying friends or family members on your payroll but they really aren’t the right fit, consider eventually replacing them with professionals who will help drive up the value of your company.

On the opposite end of the spectrum, I have also sold companies where the founder has his or her hands on every detail, and is in general a larger-than-life persona. While a strong, visionary, engaged founder is a good thing, the pendulum can swing too far and the perception amongst buyers can be that the company is entirely dependent on this one person, and their fear will be “what if this person gets hit by the proverbial bus?” In this scenario, it’s critically important that the founder has a “bench” (preferably “deep bench”) of other managers around them that supplement his or her abilities and really form the basis of a “team” as opposed to an “individual.”

Process and Infrastructure: Do you have the right protocols and infrastructure in place that will permit your company to grow and scale?

Invest in the business intangibles that don’t show up on your balance sheet but are big assets that drive company value, such as:

• Robust new marketing, advertising or product ideas
• Up-to-date operations manual(s) detailing company processes
• Employee handbooks/manuals
• Business systems: CRMs, automated marketing tools, business software

Much like a house needs a strong foundation to rest upon, your company must have infrastructure in place in the form of processes and controls. Buyers are nearly always interested in growth, and without the structure and processes in place, growth can be challenging.

Finally, if you are serious about an exit in the next six to 36 months and would like some professional assistance to help you navigate through these and other steps, consider hiring a certified exit-planning adviser (CEPA). A CEPA has been trained to take a deep dive into your business and come up with a game plan on how to make the improvements needed to receive a maximum valuation and ensure a smooth sale process.

BIO: Carol Frank of Boulder, Colorado, is the founder of four companies in the pet industry and a managing director with BirdsEye Advisory Group, where she now advises pet companies in M&A transactions and Exit Planning. She is a former CPA, has an MBA, is a Certified Mergers and Acquisitions Advisory (CM&AA) and holds Series 79 and 63 licenses.