Knowing your worth is key in either scenario
Column by NANCY ROLLAND
The pandemic has caused many business owners to reconsider their long-term goals of owning and operating their businesses. Shutdowns and personnel shortages have clearly been a drain on many, while severely impacting financial performance and their ability to effectively service customers.
If you are thinking about exiting the race, consider having a professional business intermediary, such as an investment banker review your business and provide a free, no obligation valuation. Most can perform this task quickly by reviewing your financials and asking a few preliminary questions about your operations. If you do this, make sure you find an intermediary that specializes in your industry. They will have the most current knowledge of what is happening in the marketplace and what buyers are willing to pay. Following are a few of the items they would ask you to provide.
Gather your financial statements and tax returns for the last three years as well as the current year to date and the previous year’s comparable period. Many prospective buyers like to see how the business has operated on a trailing 12-month basis, so the two periods are necessary to calculate operating results.
Identify how much you are really earning from your business that a new owner can also expect. Also known as seller’s discretionary earnings (SDE), this takes into consideration any personal expenses you are running through the company, such as personal car leases, cell phones, salaries to non-working family members, etc. SDE is calculated by taking your company’s profit as shown on your tax return and adding back potential expenses that may not be incurred by a new owner as well as other expenses, such as non-recurring or non-related business items.
Address any personnel issues or deficiencies in advance of a sale. If you are planning to completely exit the business, make sure you have at least one person in place who may be able to assume your role and duties. One of the biggest reasons buyers are attracted to and pay higher prices for businesses is knowing they have great teams in place. If you expect that the new owner is going to have to hire someone to perform your duties, anticipate a negative earnings adjustment.
Take a walk through your facility with ‘buyer’s eyes’. Could it use a thorough cleaning, a fresh coat of paint, or new equipment?
Selling your business is much like selling your home. You want to make it as presentable as possible, even in the collision industry.
Having done numerous site visits during my career, clean, organized shops still stand out in my mind and command the best price. Keeping a well-organized and clean shop is like teaching your children the importance of making their bed.
It’s not the task itself, but the development of discipline and good habits that are learned during the process.
Double check your facility lease or rent rate. If you own the property, are you charging yourself fair market value? If you are uncertain, contact a local commercial realtor for their opinion. If you are leasing it from a third party, how much time is remaining on the term? Are there any onerous conditions?
Who are your customers? How wide of a geographic region do you cover? Do you provide prospective buyers with an opportunity to expand into a new area or strengthen their existing territory?
Do you have a diversified customer base that would help in the event one of them underperforms during a particular period? Companies with multiple sources of income to smooth out the economic hills and valleys almost always garner the highest valuations.
Similarly, be prepared to discuss your relationship with your paint supplier as well as other vendors. Do you have an outstanding prebate that will need to be paid off at closing?
Our team has represented over 20 clients in the last few years with annual revenues more than $500 million. We would love the opportunity to discuss your specific situation.
NANCY B. ROLLAND is a managing director of FOCUS Investment Banking with more than 20 years of experience in sourcing, managing and executing mergers and acquisition activities for small business owners and multiple Fortune 500 companies. She can be reached at firstname.lastname@example.org, or by phone at 954-610-3410.