Tuesday, April 24, 2007

Need Financing? Maximize Your Business Value

Whether you're thinking about selling your company or bringing in outside investors, whether debt providers or equity partners, a business should be run to maximize its value.

Just how does one maximize the value of a company? I thought I would share with you the contents of an email that I received from the investment banking firm of Green Manning & Bunch. The email was about the Ten Factors Impacting Business Value. Here it is...

The carpenters’ credo, “Measure twice, cut once,” is a prudent practice in just about any process, including selling one’s business. Before making a definitive decision to “sell” and investing valuable resources, it is imperative for a business owner to address the key factors that can have a significant impact on business value.

  1. Growth—buyers want growth. Be able to articulate where your business’ future growth opportunities will come from.

  2. Current Earnings—hit your numbers. Nothing pays off like meeting current earnings projections; and nothing distracts from value like a temporary downswing. A rule of thumb to remember: every $1 of earnings equals $5 or more of purchase price.

  3. Customer Concentration—buyers will pay a lower multiple for businesses that are dominated by one or two large customers. Diversify your customer base.

  4. Type of Incorporation—S-Corp, C-Corp, LLC? Know the tax implications specific to your company’s type of entity. It’s not how much you get that matters; it’s how much you keep.

  5. Audited Financial Statements—spend the money to get an audit (or at least a review with notes) from a reputable accounting firm. Your financial history will gain immediate credibility with buyers and your purchase price will increase by more than the cost of those services.

  6. Minimize Your “Add-backs”—buyers are skeptical of earnings based on substantial “add-backs.” They want clean financial statements. Consider limiting excess discretionary expenses.

  7. Depth of Management Team—invest in professional management. Buyers value businesses that have matured and are no longer run solely by the owner.

  8. Eliminate Baggage—do you have ongoing disputes with customers, suppliers, employees? Consider settling those matters and moving on. Buyers hate uncertainty and adjust value disproportionately to the amount of the dispute.

  9. Get your Legal Books in Order—a little organization goes a long way. Update your minute book, find stock certificates, and make sure your regulatory filings are current. Visit with your corporate counsel before the buyer sends its due diligence list.

  10. Qualified Advisors—hire a qualified team of professionals to assist you in the process. Don’t try to do it yourself, or you may leave money on the table.

Run your business to maximize value and you shouldn't have any problem attracting debt financing from the right lender. And if you need help finding the right lender or telling your story the right way, read "Matchmaking for Business Loans" and give me a call.

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