Jessica Fialkovich: Maximize the Value of Your Company and Prepare for a Future Exit

 

Often business owners find their wealth is tied up in their company. So, finding opportunities to increase the value of their business, is a top of line priority. Using the key value drivers outlined in this article, business owners can increase the value of their company. The key value drivers of a small business are the same whether the owner is trying to scale the company or prepare for a future exit from their business and maximize their return on investment.

 

Build a Team of Professionals. Even if you’re not ready to exit your company soon, building an exit plan into your business plan is integral to the success of your company now and down the road. Part of this exit plan is to have a team of expert advisors you can call on regularly to review the health of your company and your growth plans and whenever the need arises. This team may include (but is not limited to) a business broker or transactional advisor, a transactional attorney, and a financial planner.

 

Developing a timeline for your growth plans and eventual exit and making your team aware of this timeline early on will help you prepare well. Many business sale processes can take 6 months to 1 year, which provides a good lead time to make ideal plans which may include how much you want to affect the value of your company prior to sale or setting up structures like a trust to help mitigate taxes incurred by a sale.

 

Orderly Books & Records. Bringing your books and records up to speed is a simple way to affect the value of your company. We often suggest hiring a professional CPA or bookkeeping company to manage your company’s finances. They are the professionals most well equipped to keep the finances of your business in order (no matter how detail oriented you are). In addition to organizing your books, updating your Profit and Loss Statements and Balance Sheets on a quarterly and annual basis is a great way to stay on the pulse of your company’s financials. These documents are also important for buyers to review when considering your company for an acquisition.

 

As part of keeping your records up to date, filing timely tax returns is paramount. When it comes time to sell, your transaction advisor (and buyers) will request up to date Profit & Loss Statements, Balance Sheets, Tax Returns and Bank Statements for the last three years and the current year-to-date reports. In a world where there is no lack of technological resources for financial management, buyers often consider out of date or inaccurate financial reporting a deal breaker.

 

Take Yourself Out of the Picture. There’s a saying – “work on your business, not in your business,” and it alludes to the fact that time spent strategizing to push your business forward is more valuable than time spent supporting daily minutiae that employees can handle. This saying not only holds true for building the value of your business, but also when it comes time to sell the business.

 

When a buyer is looking at a business, time and again, one key trait that attracts them to a business is the absence of the owner from day-to-day operations. This trait outlines a few big things for the buyer:

  1. The buyer can step into the prior owner’s role easily.
  2. When the prior owner exits the business, there will be little impact on the success of the business.
  3. The business is positioned to continue on the same operational path without a lot of added effort or time put in by the new owner.

 

Setting up a team to handle key functions like sales, customer interaction, and production that leave you, the owner to strategy and innovation, can significantly increase the value of a business.

 

Identify and Reduce Concentration. Having dependable suppliers and loyal customers in business, is a beautiful thing, but it is also important to have the right mix of suppliers and customers. Taking the time to review the concentration of suppliers and customers is a good exercise to complete on a quarterly basis. The risk of high customer concentration is real. If a business has one major client, that moves on or even goes out of business, imagine the disastrous results to the business. The circumstances with a supplier would be similar. A buyer reviewing a business for sale is going to shy away from a company with high supplier or customer concentration. So, to position your business well moving forward a good rule of thumb for customer concentration is that any single supplier or customer should be less than 30% of your business.

 

Protect & Document Processes. Having well documented processes is vital to ensuring everyone within your business is on the same page and supports a level of continuity with service and transparency within the business. Think of your processes as the architecture of your business that focus on how task and work is completed. The first step of building process documentation into a business is to identify the highest-level processes of the company, which tend toward an operational focus. Then break these highest items down again into lower-level processes, and so on and so forth. Not only does adding this documentation build the value of your company but it creates the opportunity to easily transition any role in the business to another individual, or ultimately ownership to a buyer.

 

Five Value Drivers Put to Work. If you’re an owner looking to build value in your company, whether for scale or exit, these 5 key value drivers will help move the needle of your business forward. And when it comes down to it, building a team of professionals is the first value driver, because your peers and advisors provide that expert, outsider’s view of your company that can be difficult to see when you’re knee deep in your own business.

 

About Jessica Fialkovich

 

Jessica Fialkovich is a mergers and acquisitions expert and award-winning business owner whose mission is to help small business owners leave their legacy and sell their businesses successfully, no matter the size. She knows exactly what it takes for small businesses to succeed and grow into valuable, sellable assets. Jessica is currently the President and Co-Owner of Transworld Business Advisors—Rocky Mountain, the top business brokerage firm in Colorado. Transworld assists visionary entrepreneurs with buying or selling a business in Colorado, specializing in helping family-owned and closely held businesses with their strategic plans. Through their commercial partner, Transworld Commercial Real Estate, Transworld also advises clients on commercial real estate acquisitions and dispositions.

 

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