6 little things that make a big difference to the value of your company

Frank Mancieri, Chief Growth Advisor

Here is a list of six little details to get right, before you put your business on the market:

  1. Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your company. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell.
  2.  Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.
  3.  Stop using your company as an ATM.  Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks.
  4.  Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin, she will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun.
  5.  If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” stipulating that the obligations of the contract “survive” the change of ownership of your company. That way, your customers can’t use the sale of your company to wiggle out of their commitments to your business. Have a lawyer paper the language to ensure it has teeth in your jurisdiction.
  6.  Get your Sellability Score. Take 13 minutes to answer the Sellability questionnaire now. You’ll see how you performed on the eight key drivers of sellability and you can identify any gaps you need to fill before taking your business to market. https://www.sellabilityscore.com/b2b-cfo-1/frank-mancieri

Selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner.

Frank Mancieri, Chief Growth Advisor, GT Growth & Transition Strategies, LLC
401-651-1585, frank@gtGrowth.com, www.gtGrowth.com

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Do you know what drives value in your business?

Frank Mancieri, Chief Growth Advisor

The Sellability Score is a quantitative tool designed to analyze how sellable your business is.  You may not be thinking of exiting your business now, but it is always a good idea to know its strengths and weaknesses and improve on the overall value before a major event takes place.

  • Absolutely Free
  • Confidential
  • 13-minute survey

After completing the questionnaire, you will immediately receive a Sellability Score out of 100 al
ong with instructions for interpreting your results. An advisor will contact you to arrange a review of yourSellability Score full report.

Click here to learn more about the survey and/or to take the survey

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Exciting Announcement

Frank Mancieri, Chief Growth Advisor

Dear Clients, Family, Friends, and Associates:

I have some exciting news to share with you!

Effective today, April 30, I have launched a new company, GT Growth & Transition Strategies, LLC (gtGrowth).

Although most of the services are the same as currently offered, this new company allows me to better brand and market these services, and showcase my passion for helping my clients grow their businesses and prepare for their future exits. The new company and brand also allow me to take my practice to the next level, further assisting business owners in achieving their goals.

gtGrowth is focused on helping owners of privately-held companies use their businesses to achieve their personal goals. We help companies grow and build wealth through increased profitability, improvements in cash flow, and increases in business value. We also help plan for and guide business owners through the complex world of exit planning, as business owners contemplate their future transition.

A little about me and the experience I use to help clients: after a 20-year career in private business, working in various financial management roles, I have been advising business owners since 2001, with the past 10 years as a Partner with B2B CFO Partners, LLC, focusing on New England businesses. I have conducted a number of local presentations on growth strategies and exit planning, as well as national webinars and live presentations outside of New England.

Services offered by gtGrowth include:
Business advisory services
Business exit strategy planning
Strategic planning and business modeling
Cash flow analysis, evaluation and improvement.
Evaluating systems and processes and implementing necessary changes.
Financial forecasting, budgeting, and reporting.
Development of business plans.
Assisting business owners with acquisition and sale activities.
Mentoring of finance staff
For additional information on gtGrowth, please call me at 401-651-1585 or email me at frank@gtGrowth.com.

I welcome the opportunity to speak with you.

Wishing you the best,
Frank

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Planning an Exit Requires a Relationship, Not a Transaction Mindset

Frank Mancieri, Chief Growth Advisor

For business owners who are thinking about exiting their business in the near (or not so near) future, there are many things to consider to assure the business transition happens in a smooth manner.  Owners are wise to seek the counsel of advisors in this complex and delicate area.  While discussing an exit with a professional advisor, owners are well served in asking how the advisor that they are speaking with perceives their role, as well as, how that advisor is compensated.  This newsletter makes the argument that in order for this process to go smoothly, owners should seek out the counsel of ‘relationship-based’ advisors in favor of ‘transaction-based’ advisors to create and begin implementing a multi-year exit planning process.

Understanding an Advisor’s Role in an Owner’s Life

 Advisors enter a business owner’s world mostly on a reactive basis, usually because there is a need for assistance with an outstanding issue.  For most owners the relationship with their accountant is the most consistent and often the most trusting in the realm of financial issues and that is simply because state and federal governments require, at a minimum, that businesses – and their owners – file their taxes each year.  This is, again, a reactive (albeit very important) approach to the process of finding an advisor.

However, some business owners buck this trend and actually take a proactive approach to working with their advisors, including a commitment to planning for the future.  These owners recognize the importance of ‘staying one step ahead’ and they seek out the best advisors for their short-term and long-term needs.

The Relationship-Based Advisor versus the Transaction-Based Advisor

So, given that most owners work with professional advisors, it is helpful to categorize them.  The world of professional advisors can be neatly divided into two (2) types; relationship-based advisors and transaction-based advisors.

Relationship-based advisors are those who come into the business owner’s lives and work with them, year-in and year-out, on a consistent basis.  Two of the leading relationship-based advisors are accountants (for reasons stated already) and attorneys (often at the beginning of a business venture and again when the need arises).  Many owners also confide and place their trust in financial planning professionals, insurance and risk management advisors as well as general business coaches and consultants.  These advisors take the approach that a relationship with a business owner exists over a long period of time and they remain available to these owners as needs arise.

Transaction-based advisors are those who approach the relationship with the owner with an eye towards addressing a specific, non-recurring issue for that owner.  These advisors might include real estate brokers, consultants who start and complete certain projects for owners, valuation professionals as well as mergers and acquisitions advisors.  These advisors enter the lives of owners to execute a certain transaction.  For the most part, these advisors also plan to leave the owner’s life shortly after the transaction / project ends.

Exit Planning is a [multi-year] Process, Not a Transaction

The process of exiting a business is not a transaction, but rather it is a process.  The process includes an owner thinking through all of the implications of the business running without their individual efforts as well as how the owner would live without the business.  Owners who go through this process ask themselves, ‘who will run the business other than me?’ and ‘what would fill my life in the absence of working in the business?’

Answering these seemingly simple questions and planning a separation from your business has a high level of complexity that takes time to understand and, once understood, to make critical decisions around.  Unlike a transaction, the exit planning process requires the benefit of time and self-reflection to decide what is best for you both from a business and a personal perspective. This newsletter suggests that a relationship-based advisor is a critical partner in helping to gain clarity around these issues.

Now, with all of that being said, an exit planning process may very well end with a transaction.  When this happens, those transaction-based advisors are invaluable to the process of completing a deal.  However, there are a few important caveats to remember:  (1) a transaction is the output of the process, not the immediate objective and basis for an engagement, and (2) the transaction-based advisor can learn from the exit planning process to execute on the transaction that best meets your goals.

Why Relationship-Based Advisors Are Ideal for Exit Planning

Given that exit planning is a process, it is important for owners to have a trusting relationship with the advisor who guides them through this multi-year process.  Relationship-based advisors set up their businesses to view clients as ‘lifetime clients’, coming in and out of their lives as needed.  And, as an owner going through an exit planning process, it is likely that you will want time to answer the sensitive questions that await you.  Your relationship-based advisor will take the time to help you reach your long-term goals while transaction-based advisors, generally speaking, are not equipped to conduct a multi-year process to guide an owner in this way. Rather, many of these advisors would prefer to be called at the time that a transaction is ready to be executed.  As an aside, if you find a transaction-based advisor who is truly willing to serve in a relationship basis with you, then you should consider yourself fortunate as these advisors are hard to find.

Next Steps in the Exit Planning Process

This newsletter is not written to judge one type of advisor as better than another.  Rather, it is crafted to remind owners that an exit planning process is one that should not be conducted alone and should include the patience and approach that relationship-based advisors bring to the owner.  We hope that you find this helpful in advancing your exit planning forward.

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What Factors are the Largest Detractors of Value for my Business?

Frank Mancieri, Chief Growth Advisor

Business owners who are thinking about an exit often-times want to know what challenges they will face in a sale process and whether or not someone else will want to own their business after them.  A solid exit planning process includes both personal and business factors to be considered.  On the business side, it is helpful for an owner to know about the elements that are likely to reduce the value of their business in the eyes of potential buyers.  When an owner is aware of these factors, it is likely that these ‘risks’ can be mitigated over time, leading to a higher exit value for the business.  This newsletter takes a look at the factors that generally reduce the value of a business and provides some recommendations as to ways that owners can address these items years in advance of an anticipated exit or sale transaction and therefore increase not only the potential value of the business, but also the overall likelihood of a successful sale.

What Buyers Fear Most

As an owner who is thinking about a future exit, you are well served in understanding the concerns and fears of potential buyers for your business.  The largest fear that a buyer has is that of the unknowns and the risks that accompany not knowing what the future holds.  In other words, privately-held businesses do not report earnings shareholders and do not disclose ‘material’ and ‘non-material’ items to research analysts in the manner that publicly traded companies do.  Therefore, when it comes time for a buyer to review your business for purchase, they will have countless questions about how the business operates, the markets that it serves, key people who run the day-to-day operations, as well as the overall strategy and business plan for the future.

As each question is answered, the buyer’s concerns should be reduced.  Ideally, those concerns are reduced to a point where a future buyer is eager to write you a check to take ownership of the cash machine that is your business so that they can become the next owner / partner in the company.

Pre-Sale Risk Reduction

Although every privately-held business is different, there are common factors that can be identified which contribute to the overall riskiness of a business in the eyes of a potential, future buyer.  Some of those items include:

  1. High levels of dependence upon the owner
  2. The lack of a management team (which goes along with owner dependence)
  3. Lack of a clearly-defined strategy for growth
  4. Low levels of profitability (relative to industry comparable percentages)
  5. High levels of customer or vendor concentration
  6. Incomplete or non-existent operations and procedures [manuals, etc . . . ]
  7. Incomplete or non-existent marketing and selling programs
  8. Poorly kept, non-GAAP compliant financial statements

The factors listed above exist in the majority of small businesses today and as you look through this list of factors, you will likely see many that apply to your business.  If you look ahead to what a future owner of your business will see as important, the manner in which you can answer questions relating to these [and many other] items is likely to significantly impact the success that you have in selling your business. 

How Many Years Does it Take to Fix These Issues?

Some factors are easier to fix than others.  An approximate time-frame to address each of the factors listed above is provided below:

Factors That Can be Fixed in Less than One (1) Year

  • Lack of a clearly-defined strategy for growth
  • Poorly kept, non-GAAP compliant financial statements / records
  • Incomplete or non-existent operations and procedures [manuals, etc . . . ]
  • Incomplete or non-existent marketing and selling programs 

Factors that Take More than One (1) Year but Less than Three (3) Years to Fix

  • Low levels of profitability (relative to industry comparable percentages)
  • High levels of customer or vendor concentration

Factors that Take More than three (3) Years to Fix

  • High levels of dependence upon the owner
  • Lack of a management team

Timing Your Eventual Exit

An owner’s exit from their business is primarily a personal decision and should be lead by that owner’s goals and objectives, both personally and professionally.  With that as a background for this important level of planning, the time frames listed above should help you understand how long it can take to plan and execute your exit.  For that reason, it is recommended that you begin your planning sooner rather than later because the factors and timeframes listed above are merely estimates.  Your company may take longer to fix many of these issues and, if you sell before they are addressed, you will likely be transferring the business at a lower value than you may desire (or otherwise deserve).

Concluding Thoughts

We hope that this newsletter has accomplished the objective of having you see that there are many factors that increase the riskiness of your business in the eyes of potential buyers, thereby reducing the value that you might otherwise be paid.  Knowing what these factors are and having the time and commitment to fixing them may allow you to substantially increase the value of your business prior to your envisioned exit.

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