CEO Advisor Newsletter May 2022
How to Make Your Company More Valuable and Attractive to Buyers
- Valuations remain relatively high, and M&A activity is strong. But the equities markets are changing in 2022 and this marks a departure from optimal selling conditions.
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- Today, one of the limiting factors of deals getting done are CEOs and business owners that demand extremely high prices for companies that were previously not sellable at any price due to poor financial results in the past. Another limiting factor is that your business may simply be too small to attract a buyer (under $7 - $10 million in Revenue) which means you need to gain help in accelerating your growth.
- Whether you decide to sell your company in today's market, or prefer to hold and grow your business further (and risk a deep drop in the market requiring 5+ years of recovery), there are certain key areas that you need to focus on to build value and make your business more attractive to current and future buyers.
- A strategy to make your business irresistible to prospective acquirers may generate the greatest return in your lifetime. After all, I tell our clients on a regular basis, you never know when the perfect buyer will knock on your door. To maximize your sale price, we advise CEOs to take a proactive approach to preparation for a sale and conduct a competitive sale process.
- Below are key factors that you must employ in your business to build value, make your company sellable and attractive to current and future buyers.
- Growth Rate
- The growth rate of your business is critical to the value of your business and the attractiveness to an acquirer. Small to mid-size businesses that grow at 10% or 15% per year are not attractive to buyers given the many other options they have to acquire faster growing businesses. If your growth rate is slow or stagnant, there are issues that you need to address in your business if you expect to exit at some point in the future. This key factor applies to all types of businesses all the time, and a business/M&A advisory firm such as CEO Advisor, Inc. are experts in growing and then selling small to mid-size companies.
- Size Matters
- Buyers and Private Equity firms that are dedicating people and resources (their M&A or investment team) to acquiring a majority or 100% of companies tend to focus on larger companies. It takes just as much (actually more) time to acquire a small company than it does to acquire a mid-size or large company. CEO Advisor, Inc. has relationships with both buyers and Private Equity firms to seek out the best buyer or partner for you.
- Acquirers are looking for Revenue and Profits that will move the needle of their business. They want strong management, large markets served for future growth, and Revenue that is substantial, forecastable, recurring and predictable. Kick into growth mode to increase Sales, Profits, the value of your business, and to generate your golden opportunity to sell.
- Recurring Revenue
- If you are only as good as your last project, you are in the Services category valuation-wise and not optimizing your potential or value. Acquirers see value in recurring, contracted Revenue. Not just loyal customers that buy semi-regularly, but a strategy and business model with long-term, contracted customers that is forecastable and predictable. You need to have a business model for high valuations and that has staying power to attract buyers in order to have them pay you handsomely for the customers you have secured and for your many years of hard work.
- Gross Profit and Gross Margins
- Your Gross Profit Margin (GPM), or Sales less Cost of Goods Sold divided by Sales, is the number one factor that points to the profitability of providing your products and services (before overhead/expenses). Acquirers are attracted to businesses with high GPM as this will typically result in high Net Profit, Net Profit Margin and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
- Depending on your type of business (manufacturing vs. service vs. software have very different Gross Profit Margins), you need to have a GPM that is at or higher than other companies in your industry to optimize your value. If your Gross Margins are low, seek advice from a business advisor as you are 1) Leaving a lot of Profits on the table, 2) Penalizing your business value substantially, and 3) Greatly limiting your ability to find a buyer.
- Management
- Strong management is always a key factor in running and growing a sustainable business that is attractive to buyers. Interim management (business advisors, CPAs, attorneys, etc.) work well for smaller and mid-size companies until they reach a certain size where a full-time permanent management team can be hired. If you are the lone senior executive in your company or your management team is lacking a full realm of seasoned expertise, you need to gain additional expertise and experience from a seasoned, hands-on business advisor to help you grow and build value in your business.
- CEO Advisor, Inc. has over 120 years of combined experience and expertise in hands-on advising of small and mid-size businesses, including growth and strategy, building value, growth capital and buying/selling companies.
- Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
Invest in Yourself and Your Business
- As a business owner and CEO, you selectively make investments in your business on an on-going basis. The question is – are you investing in yourself? Given today's low interest rates and other stagnant investments, investing in yourself and your business may generate the largest return on any investment you can make anywhere on this planet.
- Investing in yourself will ensure you are making the best decisions and enables you to dictate your future and your success. Investing in yourself will add critical skills (remedy your weak spots) that will be the difference in far greater success. Investing in yourself and your business also enables you to increase sales, profits and the value of your business toward an exit and the largest payday of your life.
- Different than investing in real estate, bonds or equities, investing in yourself is the key to your success provided you have the proper road map to achieve your goals. Don't go it alone - this may be the most important step of your life. Meet with a business advisor to discuss the steps below, and to address the specific needs of both you and your company.
- Here are 5 steps you can take right now that will pay tremendous dividends:
- 1. Strategic Direction
- The direction of your business is critical to your success. Now is the time to re-assess, strategize and review the year-to-date progress and make needed adjustments in your Plan and your business. Growing 10% year after year is not a gauge of success, and certainly will not increase the value of your business. With a clear strategy and sales focus you will ensure success in 2022 and beyond. For 18 years, CEO Advisor, Inc. has helped CEOs create strategies for increased sales, profits and business value.
- 2. Focus
- If you are not sure where you're going, you will never get there. Focus on your highest priorities and document what needs to get accomplished, who will accomplish them and when these priorities must be accomplished by. Focus on what meets prospects and customers' needs, drives sales and profits, and builds value in your company. A business advisor that specializes in working with CEOs can be a tremendous asset to you and your company by working with you two hours every week plus performing hands-on work to achieve your goals.
- 3. Review the Numbers
- Create key metrics in a Management Dashboard for your business that will clearly tell you if you are on track to achieve results. This will provide easy to access information that is critical to success. Review your financials and make sure to understand them thoroughly so you can address specific aspects of your business and make needed decisions based on your financials. Track these key metrics and financials monthly as a critical step in the health, growth and success of your business. Defining and tracking these key metrics will substantially increase sales and profits, enabling you to make faster and improved decisions. CEO Advisor, Inc. regularly assists CEOs in setting up these key metrics in a Management Dashboard to drive success, and can help you analyze your financials and provide feedback on how to maximize your profits and valuation.
- 4. Set Your Goals
- Establish clear near-term and long-term goals for both you and your business. Create and prioritize major initiatives and deadlines around what is needed to accomplish these goals. Then, assign personnel, management or advisors to ensure timely completion of these initiatives and projects. This can be one of the best investments you can make.
- 5. Invest in Needed Advice
- The business issues above are just some of the more critical issues that you must tackle every day. The impact on your business, your life, your bottom line, your cash flow and the value of your business is tremendous. A trusted, seasoned business advisor can be the difference in your business success and achieving your life's dreams of a successful exit. CEO Advisor, Inc. provides three levels of very affordable business advisory services that will impact your life tremendously.
- Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.