This article is for those business owners that have begun the process of entertaining offers for the eventual sale of their company, or have established a goal for the sale of their business with a time-line. Whether you realize it or not, you have entered an area of danger that could keep you from selling your company or drive the value down significantly. Read carefully the following statement from Larry Reinharz, the Managing Director of Woodbridge International.
“The number one reason our deals get delayed or don’t happen is declining financial performance. While due diligence is important, and deals blow up in due diligence, it’s not the number one reason for delays or blow ups. In rough percentages, the reasons deals are delayed or don’t happen are as follows:(1) Declining financial performance (80%), (2) Unresolved issues that pop up in due diligence (10%) and (3) Owners getting cold feet and backing out (10%)(Mills, p.61).”
Notice the number one reason is declining financial performance, and that decline very often begins at the very start of the exit strategy process. The reason this happens is the owner becomes distracted by the exit process and starts to cease the activities that built the value of the company in the first place.
The key to keeping your company at a high value and even increasing its value during this process is to FOCUS and keep FOCUSING on the value drivers of your company. Continue to maintain and build customer relationships. Review the financial details of your company every month and make timely decisions accordingly. Keep being the leader of your company and delegate other tasks that can so easily get you off track. Your goal is to increase the value during this exit process. Keep in mind what Frederick Lipman said. “For each $1 that you increase your EBITDA during the valuation year, you should arguably receive an additional $4 to $6 in sale price (Mills, p.62).”
*Mills, Jerry L., (2013), The Exit Strategy Handbook