Article : Building Company Value, for Exit or Not: Either Way, You Win

By David W. Kellogg, Spring 2015

There is a lot of focus in the small and middle market business space on preparing a company for the successful exit of its current owner(s). The rational is a good one. Take the steps now that will allow you to sell your company in the future for more money than it is currently worth. This principal is a no-brainer if you are planning to sell your company in the next few years. But what if you have no intention of selling your business in the foreseeable future? You may have a lot of personal business goals that you want to accomplish. Perhaps you have some family members who have the interest and ability to take over the company in the future. In fact, many of the principals and techniques that are needed to prepare for a successful transition should also be pursued even when you don't have any intention of exiting.

Why is this? I have found that the primary strategies that are commonly used to create a higher value in the eyes of potential buyers of one's company, are also strategies that will result in higher profits and more stable financial performance of your company in the near-term. Some examples of high-impact techniques to get a company ready to sell include:

  1. Execute employment contracts and non-compete agreements with key employees.
  2. Establish customer contracts that are fully assignable, at your option.
  3. Protect all types of intellectual property.
  4. Ensure revenue recognition integrity within the company's accounting system.
  5. Continually upgrade employee quality. Don't tolerate low performing employees.
  6. Work to build and support a high performance company culture.
  7. Review your Business Strategy to capitalize on opportunities for growth and enhance long-term value growth.
  8. Put in place Buy/Sell Agreements between multiple owners.
  9. Establish Life Insurance that is adequate to buy out an owner who dies unexpectedly.
  10. Evaluate the potential tax impacts of a sale. Consider conversion from C-Corp to S-Corp.

There are of course many more, some of which are unique to each company or industry.

Yes, all of these strategies, and others will allow a business owner to sell their company for a substantially higher price. However, these strategies will also improve financial performance in the shorter-term. Not only will profits increase over time, but the predictability and stability of profits will also improve. Stable and higher profits/cash flow are a winning result for any business owner. In addition, these strategies will enhance a company's credit profile, allowing for easier access to debt capital. As a business owner, it can be a useful way to focus your efforts by asking the question: "What steps would I take to improve my business, if I had to sell the company a year from now?"

Most of my clients are companies that do not plan to seek a buyer in the foreseeable future. There are some, however, that are planning to sell in the next few years, or are actively seeking a buyer right now. Whatever the situation, every business should be "seller ready".

© Copyright David W. Kellogg 2015. All rights reserved.

Articles


What Our Clients Say

“David assisted me in my first business acquisition. His deep experience and solid advice helped me tremendously when structuring the purchase agreement and obtaining financing on favorable terms. David provides not only great financial expertise, but also the business counsel.”

- Nino M. Granatiero, Owner
  Bristol Yacht Interiors


Join Our E-Mail List

To join, enter your email address below and click "Join". We will not use your address for anything except our newsletter, and you can discontinue your subscription at any time.