Position Your Company for Value
By Michael Trabert, Partner, Advisory Services
All business owners want to receive maximum value for their business at the time of their exit. Yet, far too many owners discover they have not put enough thought into a growth strategy to achieve that value. As a result, far too many face unexpected surprises when they decide to sell. The good news is there are sound strategies and practical techniques you can adopt to position your business for transition.
70 to 80 percent of businesses put on the market don’t sell. (Exit Planning Institute)
A lively panel discussion, hosted by the Northeast Ohio Chapter of the Exit Planning Institute (EPI) and Alliance of Merger & Acquisition Advisors (AMAA), discussed these issues, and more. More than 100 professionals attended “Reposition Your Company – Increase Your Value” to learn how business owners can make their companies more attractive for a liquidity event. As leader of Marcum’s Value Acceleration/Exit Planning Services Group, I was pleased to join my fellow panelists who offered the perspectives of an investment banker, an attorney and a business owner who has successfully transitioned two businesses.
Not surprisingly, we focused our discussion on potential buyers who are interested in knowing just how ready a business is for transition. Buyers want to know:
- Can the business owner go on vacation for a week without the business falling apart?
- Is the management capable of growing the business once the owner exits? Have they demonstrated they can do so?
- Will vendor and customer relationships transition smoothly?
- Do employees have restrictive covenant agreements or other binding contracts?
- Is the owner running the business as a lifestyle business or a growth business?
If it’s a lifestyle business, the business often needs a value acceleration plan complete with a list of steps the business owner and management team must take before transitioning the business.
At Marcum we work with business owners to determine their readiness to exit through a Business Attractiveness and Exit Planning Readiness Assessment. By completing a thorough assessment, which includes 150 questions, we tabulate an attractiveness score and a readiness score to identify strengths and weaknesses and deliver a prioritized action plan.
In our Owner’s Roundtable, when we discuss building value, our conversation often focuses on intangible value, also known as intellectual value. Intangible value is represented by four types of capital, or what we call the Four Cs:
- Human capital (e.g., employees, and a business’ ability to recruit, develop and retain them)
- Customer capital (e.g., relationships, contracts)
- Structural capital (e.g., processes, technology and their connection to personnel expertise)
- Social capital (e.g., culture, brand)
In my guide, “The Five Stages of Value Maturity,”I provide business owners with sound strategies and practical techniques to position your business for a successful transition and exit on your own terms. As I shared with the audience, the five stages are:
- Identify value
- Protect value
- Build value
- Harvest value
- Manage value
Each stage is critical to maximizing value, avoiding surprises and ensuring a smooth transition.
Transitioning your business is a once-in-a-lifetime opportunity. Getting it right the first time starts with a plan, evolves through development and deployment of a process and concludes only as a result of relentless execution on the part of you and every member of your team. All actions must be geared toward building value in the business, and building personal value for you. The earlier you start planning, the more likely you are to have a successful transition.
I welcome the opportunity to discuss the Five Stages of Value Maturity in more detail with you, answer your questions, talk through our approach to value acceleration and exit planning and discuss how we can help you prepare and execute your transition plan.