Maximize Business Value - Before Exit
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Transcript of Maximize Business Value - Before Exit
Maximize Business Value
Before Exit
Realize Full Gain on Business Value Growth
Increase Value Multiple / Sale Price
Strengthen Team and Leadership
Easier to Run Business Day-to-Day
White Paper
B U S I N E S S V A L U E G R O W T H
GROWTHALLIANCE
growalliance.net | 877-330-7070 | [email protected]
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growthaliance.net | 877-330-7070 | [email protected]
Contents
Thinking About Exiting 3
Business Value Growth | Before or After Exit 4
Think Like a Buyer 5
Maximize Business Value 8
Profit Improvement 9
Revenue Growth Acceleration 11
Team Building / Leadership 13
Summary | Next Steps 15
by:
Jack Zimmanck
Jeff Cartwright
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Thinking About Exiting Your Business You may have talked to your CPA and attorney and perhaps your personal financial advisor.
While they were helpful, the path to maximizing the value of your business is still unclear and
likely to require a fresh perspective, new skills and a steep learning curve. It is also likely that
professional assistance in a number of areas will produce a substantially improved result.
Exit Guidance
This paper endeavors to fill knowledge gaps and provide an overview of the steps involved
preparing a business for a transfer of value (sale, partner buy-out, ESOP, etc.) Once the
decision is made to transfer value, the business becomes a product whose value is scrutinized
by buyers and can be enhanced to attract more buyers and improve the selling price.
Business Exit Stages
First Steps / Personal
Business Value Growth
Exit Transaction
Current Trusted Advisors
Provide initial perspective and
preliminary exit preparation
CPA
Attorney / Tax attorney
Personal wealth manager
Tax attorney
Advisors / Services
Enhance business value, and
exit value multiple
Business valuation service
Value Growth advisor
Exit planning advisor
Advisors / Services
Support transaction preparation,
sale, negotiation and closing
Investment banker / Broker
Corporate attorney
Tax attorney
Insurance / ESOP advisor
Actions
Exit proceeds plan
Tax planning
Family / partner dialog
Post-sale life plan
Actions
Business valuation baseline
Value Growth strategy / plan
Profit Improve initiative
Sales growth initiative
Team / Leadership initiative
Actions
Prepare offering
Contact, present to buyers
Negotiate transaction
Close transaction
Allocate exit proceeds
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Value Growth | Before or After Exit
Value Growth After Sale (Buyer Profits From Value Growth)
A well-known example of Business Value Growth is the approach private equity groups take
following the acquisition of a target business. They develop a Value Creation Plan to improve
the business and add value during their ownership, insuring that the business value and selling
price when they sell that business, has been maximized.
Value Growth Before Sale (Seller Profits From Value Growth)
PE firm’s Value Creation Plans focus on accelerating business change, ensuring strong “value
creating” activities and tight accountability for results in the shortest possible time. This sharply
focused plan ensures alignment of the management team with business objectives and creates
a sense of urgency and a winning attitude as the foundation for a change oriented culture.
Growth Alliance guides your team to create a Value Creation Plan for your business so that
Business Value Growth is maximized Before Exit, enabling you to receive the full benefit of the
improved value, rather than the buyer.
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Think Like a Buyer
Thinking like a buyer provides important insight into where and how to invest time and
resources to enhance your business value. From the time you decide to sell until the sale
closes, every decision regarding the sale is best viewed through the eyes of your target buyer.
Buyer’s View of Business Value
The buyer’s assessment of a business revolves around reducing exposure to future risk and
maximizing the opportunity for future growth. These opposing concepts are constantly at work
as buyers identify potential businesses to buy and during the due diligence process as they
screen purchase candidates.
Two Types of Value
As buyers evaluate purchase candidates and later during due diligence they are looking for risk
and opportunity hidden in two types of value.
Tangible Value (On the books)
Buyers closely scrutinize and conduct a substantial part of due diligence on tangible value that
can be seen, measured and has already been realized. Plans that have not yet been translated
into measureable results are heavily discounted. Tangible value provides buyers and their due
diligence team with a clear path to measure historic performance, inventory, fixed and financial
assets and validate the accuracy of the information in the offering memorandum.
Audited financials
Above average profitability and market share growth
Cash flow
Product inventory
Plant and equipment
Employees / management head count, job descriptions and organization structure
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The hard numbers of tangible value establish the baseline for measuring the one business
relative to another, but is not the final determinant of value or appeal to a sophisticated business
buyer.
Intangible Value (Off the books)
When the buyer’s due diligence team is satisfied that tangible value is “as advertised”, intangible
value becomes the principal driver of business value and interest for high-value buyers.
Intangible value is comprised of non-physical attributes that cannot be seen, counted or
precisely measured and are the building blocks of future earnings and growth.
Intangible Value Premium
Smart buyers are focused on the future. A business that has strong leadership, solid customer
base and a culture of success, assures buyers that the business will be worth more in the future
than today. Investment in people, processes and capabilities build confidence and create a
path to the future that buyers can see, understand and willing to pay a premium to acquire.
Intangible Value Drivers
Internal Strengths
Market Focus
Culture of Success
Strong team / leadership
Documented processes
Advanced tech strategy
Seasoned work force
Certifications (ISO, Lean)
Proprietary processes
Intellectual property
Unique products / services
Intense customer focus
Well respected brand
Innovative value creation
Strong Marketing / Sales
Responsive to market
Strong digital presence
Top quartile market position
Excellent cust. experience
Growth in profitability
Growth in Revenue
Overcomes obstacles
Results driven
Blue chip customer base
Broad distribution network
Readily solve problems
Cohesive / collaborative
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Buyers Don’t Pay for Risk
Buyers see risk factors like those below as substantially lowering business value wile mitigating
these risk factors will positively impact business value.
Excessive owner dependence
Significant customer concentration
Disproportionate employee turnover
Historic declining revenue and/or profitability
Over concentration of supplier base
No clear path forward
Perceived barriers to growth
Your Target Buyer Profile
Your target buyer profile is the key benchmark for evaluating key decisions about value growth,
value documentation and positioning your business for sale. Your ideal target buyer is largely
determined by decisions you make as you establish your level of readiness to sell. At the end
of the process, you may well sell to someone other than that original target, but along the way,
you will have maximized your business value for all buyer and stake-holder alike.
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Maximizing Business Value | Growth Plan
While similar in concept to the Private Equity 100 day plan, Growth Alliance value growth
approach is tailored to your business objectives, priorities and capabilities in three key areas.
Profit Improvement
Revenue Growth Acceleration
Team building / Leadership
First Step | Business Valuation
We begin building Value Growth Plan with issues identified in recent business valuation and
work with team to uncover additional opportunities to enhance business value. If current
valuation is not available, we conduct a basic valuation to establish the baseline value for
tracking Value Growth initiatives.
A professional business valuation establishes the current price buyers are likely to pay for the
business “as is” and sets the baseline for going to market immediately or measuring the
effectiveness of value growth initiatives before the sale.
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1. Profit Improvement
Hidden profit opportunities are often overlooked during the day-to-day activities of business
operation and provide the opportunity for almost instant additional bottom-line profits…and fresh
resources to invest in value growth.
Financial Engineering
Finance and operations departments tend to operate independently of each other. In many
small and mid-market businesses, finance is sharply focused on current expenses, accounts
payable and accounts receivable. Operations departments are focused on making and shipping
top quality products, leaving little time to strategically transform the business to a higher level of
operational and financial performance.
To reverse this short-term focus, we review accounting and financial processes to ensure timely
monthly closing and reporting of key financial indicators. Other areas for financial review
include facility sale and leaseback, debt/equity structures and balance sheet items that improve
current return. While these are normal and necessary steps, they do not add value per se, but
facilitate the following activities that build business value.
Shop Floor Productivity
The urgency of manufacturing and shipping rarely allows time to challenge how the tasks are
accomplished. Over time processes become executed by default rather than by design and
inefficiency creeps in. In most cases, even a cursory review of existing processes reveals
inefficiencies, excess resources, and under-performing operations.
To regain efficiency, conserve resources and optimize operations we work with your team to
Identify constraints and inefficiencies limiting growth and profits, starts with the strategic
question “what is holding back the business from growing”? With bottlenecks identified, we
guide sequential operating performance improvements and significant productivity savings.
Beyond Manufacturing
Optimizing functions, beyond the manufacturing floor results in near-term profit improvement
and long-term competitive advantage. While most manufacturers spend more on raw-materials
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and components than any other category, few view purchasing, value engineering or talent
management as strategic opportunities for profit improvement and sustainable competitive
advantage.
Our end-to-end approach works from the finished product backwards, identifying opportunities
for saving in product design, product engineering, materials procurement and managing the
talent that creates and builds your products.
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2. Revenue Growth Acceleration
Topline growth is driven by three customer-facing capabilities that connect in a seamless
process that begins with customer demand and continues through creating, positioning and
communicating value to exchange, deliver and sustain long-term customer value.
Sales Acceleration
The digital marketplace has blurred the distinction between sales and marketing into a single,
end-to-end function that begins with lead generation, qualification and education and feeds the
sales pipeline with pre-conditioned leads that are easier to work and faster to close.
Growth Alliance works with your team to define a clear vision of the future, strengthen sales
leadership and align technologies and training with forward-looking growth strategies, building a
strong foundation to support long-term sales growth and competitive advantage.
Marketing Impact
Strengthen and align strategic and tactical marketing capabilities with sales objectives and
customer services teams to create, communicate and deliver the highest value to your
customers.
Tactical Marketing
Tactical marketing has a near-term, tactical focus on communicating the value that fills sales
pipelines with pre-qualified leads and communicates compelling brand character. Tactical
marketing is driven by the crafts, skills and creative ideas that enable timely communication
of clear value messages and brand images.
Strategic Marketing
Strategic marketing takes a longer, 3-5 year view, focusing on understanding and
harnessing the forces that shape markets, drive demand and defeat competition. Strategic
marketing is the “big Picture” perspective required to interpret market movement and guide
business strategy and direction. Key elements are a cluster of strategies that powerfully
shape the competitiveness and future growth including: business and marketing strategy,
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brand strategy, product strategy, competitive strategy, distribution strategy, marketing
technology strategy.
Customer Experience
Customer Experience is the living expression of your brand, and is the sum of all interactions
a customer has with your business at all points of contact, measured against their expectations.
Customer Service has evolved from an expense line-item into a key strategic element
of brand strategy and the single most powerful brand and product differentiator, brand and
builder and customer advocacy support mechanism.
Growth Alliance works with your team to strengthen and align strategies, processes and
technologies to deliver winning experience to your customers with a transaction process that is
easy to engage, respectful, trustworthy, consistent, thorough and enjoyable.
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3. Team Building / Leadership
Among the most powerful business value drivers is a proven management team capable of
continuing profitable operation and strong revenue growth with little or no input from the current
business owner. This team and its leadership is the living core of future business growth and
among the most important drivers of the intangible business value business buyers are seeking.
Leadership
Top performing teams don’t just happen, they are the result of thoughtful planning, thorough
training and exceptional leadership. The formula for organizational success is leadership who
understand their significance to the team and the teams’ importance to successful outcomes
resulting in accelerated growth, improved profits and enriched value of the business
Organization
In many privately-owned businesses the organization was not purpose-designed, but grew
organically. As need arose, a new positon was added to the existing organization with little
concern about overall operational efficiency or departmental relationships. As the business
grows the inefficiencies compound inhibiting further growth, waste resources and reduce profits.
Company-wide reorganizations to address these inefficiencies can often be risky and always
disruptive. Restructure of individual departments conversely can be much more controllable,
predictable and manageable and the results can be quick and spectacular
Coaching / Training
Major growth, profit improvement or preparation for sale demands a well-defined plan to
strengthen the existing proficiencies of leadership and their processes to achieve exceptional
results.
Assessment
Effective collaboration and communication begins with identifying the strengths and needs
of leaders and their teams. We take great care in providing reliable assessments, with
professional interpretation to manage relationships with precision and improve team
performance.
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Coaching
Coaching identifies the strengths as well as the “needs” of a leader. It challenges individuals
to discover deeper self-awareness, develop stronger team relationships, and achieve a
greater sense of organizational purpose.
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Summary
Value Maximization
Maximizing Business Value Before Exit provide seller the opportunity to reduce issues buyers
find risky before taking business to market and, at the same time enhance elements buyers find
valuable. Both actions translate into a larger pool of buyers, higher value multiple and stronger
exit price.
.
Growth Alliance begins with baseline market value, developing priorities and actions and work
with your team to define a value growth strategy and action-plan that fits your business, your
team, your resources and your growth objectives.
Impact on Your Business
Make the improvements that Private Equity groups would make before selling business
and realize the value of those improvements in the selling price.
Establish solid track record of improvement in revenue, profitability and operability that
reduces buyer perception of risk and increases the business value.
Reduce reliance on seller as the business operator and allow development of team for
continued profitability and growth for buyer.
Make business easier to run with fewer day-to-day operational problems enabling you to
focus on strategic growth
Next Steps
Contact Growth Alliance to discuss your business exit ideas and how we can help enhance the
value before the transition.
877-330-7070 | [email protected]