The article outlines the importance of intuitive leadership and effective delegation in business. The transition from manager to leader is crucial for entrepreneurs planning to exit their company without hampering its value. Such a transition allows the business to run without the entrepreneur's constant involvement and increases its worth to potential buyers. The process involves setting up systems, selecting a competent team, and mastering the art of strategic delegation. Challenges might include relinquishing control or fear of errors, but fostering a culture of leadership and learning from setbacks can help entrepreneurs navigate these challenges.
The article discusses the importance and complexity of adjusted or normalized EBITDA in M&A transactions, focusing on add-backs, which adjust the EBITDA to reflect a company's financial performance accurately. However, these additions require careful handling, buyer agreement, and substantial documentation to maintain valuation integrity and seller credibility.
Economic Value Add (EVA) is a growing financial metric increasingly used by companies to create long-term shareholder value. It offers a measurement of economic profit as opposed to a monetary one. Interpreting EVA allows a business to manage capital more efficiently, make informed investment decisions and prioritize initiatives for maximum long-term value. Unlike other financial metrics, EVA is free from accounting malpractice and one-time events.
This article discusses elements that affect the marketability of a business before potential sale. These include clean audited financials, reduced conflicts of interests, robust business systems and accounting, ESG practices, effective HR, clear succession plans, standardized processes, and a written strategic business plan, which can all increase the probability of a successful transaction.
To increase a business's "transferable value" for selling, entrepreneurs should aim to reduce the business's dependence on current owner/managers, develop a strategic growth plan, clean up the financial books, scrutinize spending, focus on the quality of earnings, reduce risk for potential buyers. These steps, among others will make the business more marketable to prospective buyers.
Identifying transaction priorities is crucial for both business buyers and sellers before going to market. Maximal value may not always be achievable and often involves structured deals, including earnouts or vendor takebacks. Considerations such as potential roles, control retention, and impact on stakeholders are also vitally important. Successfully shaping your approach requires clarity about your top priorities.
The article emphasizes the importance of gaining a realistic valuation of a business before considering a sale. A professional appraisal by an experienced advisor, taking into account factors such as financial history, asset values, and market conditions, is recommended. An accurate appraisal can provide valuable insights, aid in future business value negotiations, and help determine potential buyer interest. This process is vital for sellers, even when the buyer pool is limited, before entering the market or having discussions with potential buyers.
Private business owners, especially as their operations grow in complexity, can often benefit from establishing an Advisory Board to provide non-binding advice on key issues like exit planning, growth strategies, and acquisitions. It's essential, however, to carefully select members who align with the company's vision and can contribute diverse opinions and expertise. The formation and management of an Advisory Board should be tailored to the needs of the business and the management team.
The article discusses how business sellers can mitigate the potential risk of 're-trade', a situation when deal terms are revised negatively at the last moment. Key strategies include proper preparation before negotiations, carrying out due diligence from a buyer's perspective, outlining non-negotiable terms to potential buyers, having alternate options, and validating the buyer's due diligence. The seller should be wary of certain warning signs that a re-trade may be forthcoming, such as vague offers, inadequate due diligence, and poor understanding of the business.
When selling a business, the timing and approach to engaging with potential buyers is crucial. A measured approach is necessary to maintain buyer interest and avoid potential pitfalls. Clear objectives should be defined before initiating discussions; their interest and strategic fit should be assessed before discussing value. Testing the waters before being prepared to sell or without realistic expectations can lead to negative consequences. Engaging an experienced M&A advisor can help determine a value estimate and facilitate negotiations. Sequentially engaging with buyers individually may complicate transactions.