This is the next blog in my Igniting Growth Series where I capture and share some of the wisdom, I’ve gained over my 30 years in CEO/President positions and pass on the knowledge gained from the CEOs I’ve worked within an advisory capacity. My goal is to provide simple, easy-to-implement insights/ideas to ignite success in your business. This next post focuses on how to prepare your organization for investment or sale.
Recently a CEO came to me with a simple request:
“Is there anything, besides our normal operating activities, that I should do differently to prepare my company for a sale in the next year or two?”
What I liked about this question was the self-awareness of it. The CEO recognized that there might be things he could do to increase his company’s value over and above the usual efforts of running and growing a business. Having sold several companies and participated directly in over $100M in funding over my career, I reflected on my experience and noted the conditions that led to success and what did not.
Interestingly enough, preparing to sell your company is not that dissimilar to preparing your company to attract additional investors. To some degree, I was reminded of how when selling your house, a realtor will advise you to “stage” your home to increase valuation, to make it attractive to what buyers are looking for.
So, what do prospective investors and buyers really look for when purchasing a business? What might be top of the list in their Due Diligence? Of course, Revenue and EBITDA performance (assuming profitability) is at top of most lists, and I would expect this is already part of your plan, but what else? Here is a short list with suggestions to help you “stage your company” for sale or investment:
Tip: Look carefully at your current business. Is there any potential to drive some recurring revenue, even if it comes at the cost of upfront sales?
Tip: This one is simple – you need to dedicate some of your time (or your sales team) to focus on new accounts, rather than the easier ‘farming’ of existing accounts. Be sure to create the appropriate incentives.
Tip: Do you currently have a strategic plan you are executing against? Are your operating KPIs aligned? If not, DO IT…
Tip: It is never too late to start developing your management team. Challenge your managers to take on responsibility and make decisions, provide approval levels, even let them make mistakes (within limits) and where they are not up to it, perhaps time to make some changes.
Tip: Part of your strategic plan needs to look at the potential to apply your special technology or skills to develop blockbuster new products or markets.
Tip: If you do the points outlined in 1-5 above, this will take care of itself!
One additional comment on the importance of Ebitda. While the top of most lists, there is the exception in growth companies where they have traded off short term profitability for investments in future growth. Buyers, investors may conclude that is the right decision and weigh future growth more heavily.
To conclude, if you are not rushing to sell or bring in more investment, then you have time. Use this time wisely by staging your company now so that when you do choose to test the markets, your valuation may be considerably better than if you had simply let the business take care of itself.