Planning The Exit Maximizing Value And Your Company's Future
Jan 01, 2009
Successful Business Owner:
You have worked for years and made incredible sacrifices building your company. It is your largest financial asset. However, in the next one to three years you may want to sell or transition out of your company, maximize the value you receive from it and ensure its future success so you can enjoy your retirement and other endeavors. Planning is the key to a successful exit.
B2B CFO's® have extensive experience helping owners increase the value of their companies and plan successful exits. While you may have a controller or a CFO, most likely they do not have the experience of a B2B CFO®. Our skills in business improvement and exit planning make us uniquely qualified to help you reach your goals.
Planning the Exit - Steps to Maximize Value
I. Improve Profitability and Cash Flow
Most companies are valued on a multiple of EBITDA (Earnings before interest, taxes, depreciation and amortization). Increasing earnings drives EBITDA. A company with a history of increasing profits and cash flow with margins above its industry averages will sell at a higher price. Tools used to increase profitability and cash flow include the following:
- Accurate, timely, well-structured and meaningful financial statements and reports
- Benchmarking tools for tracking and improving operations and financial performance
- Gross profit optimization - margin analysis and improvement
- In-depth labor analysis and reporting to improve labor efficiencies and reduce overhead
- Working capital improvement strategies to reduce A/R and inventory and increase cash
- Purchasing and negotiation strategies to lower purchase costs
- Job and cost accounting systems for understanding and improving margins
- Line of business, product line and customer profitability analyses and improvement
- Formalized cost and overhead reduction programs
- Tax minimization strategies for increasing cash
II. Increase Sales
Increasing sales, if done properly, is often the quickest way of increasing company value. When above the break even point, gross margin on additional sales can dramatically increase profits. In addition, companies with higher revenues normally attract higher EBITDA multiples. Financial tools can be very powerful for creating strategies to increase sales. Some of these tools include:
- Proven B2B CFO® process "Finding the Exit"® to help the CEO/Owner sell more
- Strategic and Financial Planning, incorporating sales and marketing strategies
- Quoting and pricing tools and strategies to understand costs and improve proposals
- Financial modeling & ROI analyses for new products, investments, and facilities
- Sales analysis tools - insight from understanding trends by customer and product line
III. Strengthen the Infrastructure
Acquiring companies want to buy well run companies with solid infrastructures. Strong management teams are a critical component. Robust and well documented systems, procedures and processes are also essential. Strong infrastructures also make good use of technology and have strong internal controls. Well documented intellectual property and customer and vendor contracts are also critical.
Companies with strong infrastructures command a higher price. Most acquirers will analyze the infrastructure when performing due diligence. You do not want them deducting significant amounts from the sales price, or worse, walking away altogether because you do not have your infrastructure in order. At B2B CFO® we understand how to help you improve your infrastructure to maximize company value.
IV. Strategic and Financial Plans
The most successful companies have a strong strategic planning process which helps them create the vision and strategies to drive high long term growth and profitability. They prepare financial models to analyze their strategic initiatives and projected financial statements to understand what future profitability and financing needs may be. They also have a strong operational planning process to develop goals, action plans, timelines and accountabilities to reach their current year goals, which are integrated with the strategic plan. The operational plan includes a well thought out budget. Finally, they have a results management program to ensure they continually execute their plans and keep on track to reach their goals.
Companies that have well thought out plans using a structured approach are much more successful in reaching their sales and profitability goals than those that run with simpler planning methods or "by the seat of their pants". They are able to command higher EBITDA multiples when they are sold because the acquiring company can see the future value potential of the company through the strategic plan. At B2B CFO® we know how to facilitate the strategic and financial planning processes to accelerate your company's growth, and have extensive experience helping companies execute their plans, overcome barriers, and drive profitability.
V. The Sale and Exit
The sale of a company is a complex process and normally involves many parties and a six to eighteen month time frame. To maximize value we recommend starting to Plan the Exit a year or more in advance. We also recommend using an investment banker that is able to bring many potential buyers to the table. In addition to a good investment banker, an estate and business attorney and your tax advisor should be involved.
Whether you are thinking of exiting your business now, or in a few years, understanding how your company may look to a buyer today is a good first step. We will perform a free Phase I assessment of your company's financial strength and infrastructure and give you insight to the actions you may be able to take to improve your company and its potential sale value.
Your B2B CFO® is uniquely qualified to help you increase the value of your company to maximize its selling price. We have the expertise as well as strong relationships with top, middle market investment bankers and other professionals to help you through a smooth and successful exit from your company.