To make your company more attractive to buyers, Strategic Exit Advisors, the Hopewell-based firm that facilitated the merger of the Kelsey Group with BIA, recommends putting the following elements in place:
A stable and motivated management team. If you don’t plan to sell your business for at least a year, then you will want to establish an incentive compensation system (cash or stock-based) that rewards key employees as the company performs.
Operating systems that improve sustainability of cash flows. Operating systems include the computerized and manual procedures to generate revenue and control expenses, as well as the methods used to track how customers, products, and services. The establishment and documentation of standard business procedures and systems demonstrate to a buyer that the business can be maintained profitably.
A solid and diversified customer base. Buyers will be looking for a customer base in which no single client accounts for more than 10 percent of total sales.
A diversified customer base helps insulate a company from the loss of any single company. If you find the majority of your customer base is comprised of only one or two good customers, it is important to reinvest your profits into additional capacity that will make a broader customer base possible.
A realistic growth strategy. Buyers pay premium prices for companies having a realistic strategy for growth.
Even if you expect to retire tomorrow, you need a written plan describing growth and how that growth will be achieved based on industry dynamics, increased demand for the company’s products, new product lines, market plans, growth through acquisition, manufacturing capacity, and so on.
Effective financial controls. Financial controls are not only a critical element of business management, they safeguard a company’s assets. Most importantly, however, effective financial controls support a claim that a company is consistently profitable. The best way to document that the company has effective financial controls and that its historical financial statements are correct is through a certified audit or a verified financial statement by a CPA.
Stable and improving cash flow. Ultimately, all value drivers contribute to stable and predictable cash flow. It is important, especially in the year or so preceding the sale of the business, that cash flow be substantial and on an upswing. You can begin increasing cash flow today by simply focusing on ways to operate your business more efficiently by increasing productivity and decreasing costs.