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Focusing on the items below can positively impact a buyer's interest in a business and how much they are willing to pay.
For a list of the things you can do to help enhance your business, please contact O'Keeffe & O'Malley.
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- Cash Flow/Earnings:
Buyers typically base their offer on the re-casted
earnings or cash flow of the business. Interest, deprecation,
amortization, expenses that are extraordinary and excessive, owner
benefits and perks which a replacement manger/owner would not incur are
all re-casted to arrive at a re-casted EBITDA (Earnings Before Interest
Taxes Depreciation Amortization). Focus on increasing your bottom line.
Every dollar in earnings can give you $3 to $6 in selling price.
- Management Team & Owner Dependency:
Are key customer and vendor relationships
dependent on the owner? Buyers want to see transferable relationships
that won't be overly vulnerable to competitors once the owner departs.
Develop a strong management team to back up the owner. Otherwise the
owner will need to stay working with the buyer for an extended period of
time and the price may be paid out over time.
- Non-Compete & Confidentiality
Agreements:
Key employees are a threat to become competitors.
Having employee's sign non-compete and confidentiality agreements before
they find out the business is being sold keeps you in control and will
comfort a buyer's anxiety.
- Customer Base:
Revenues derived from
several large customers impairs a buyer's confidence in the future of
your company. Implement a marketing plan that will lead to the creation
of new markets or customers. Ideally no customer should account for more
than twenty percent of total revenues.
- Employee Dependency:
Are employees
cross-trained in multiple areas of the business? This minimizes the
negative effects of employee defections before and after a sale.
- Supplier Dependency:
Are replacement
suppliers available if key suppliers go out of business or change
distribution methods? Contingencies should be in place if possible.
- Market Dependency:
Are sales tied to a
single industry or geographic market? If so, be prepared to defend why a
potential buyer should not be concerned.
- Commodity vs. Proprietary:
How does a
company differentiate itself from competing companies? Firms that set
themselves apart through proprietary products, processes or superior
service are stronger than those that compete on price alone.
- Pre-Due Diligence:
Conduct a pre-due
diligence of your organization. Letters of Intent (LOI) often fall apart
because of unknown items that come up in due diligence or because the
due diligence process drags out trying to resolve certain issues that
could have been fixed if known earlier. Identifying hidden skeletons
prior to selling allows owners to resolve issues on their time frame.
Having a pre-due diligence package assembled prior to selling comforts
and impresses buyers plus it speeds the selling process towards closing
after a LOI is executed. Hiring a CPA and attorney to conduct the
process prior to finding a buyer may be expensive, but in the end your
"Pre-Due Diligence" will reap many benefits.
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