Businesses aiming for a smooth sale or transition need to adapt a lean, mean, and clean approach. This involves cost reduction strategies, discarding underperforming products and divisions, ensuring balance sheet clarity, and updating operational procedures. Strategies like tail spend monitoring and obsolete inventory management can assist businesses in driving their value up, attracting a larger potential buyer base, and ensuring a successful transition.
Customer quality, a crucial component of business revenue, directly affects business value. It includes sustainable, predictable and profitable sales. Data-driven demonstrations of improving customer quality can enhance business valuations. Traditional tools like Net Promoter Score, Customer Experience Management, and Customer Relationship Management, as well as advanced analytics and AI tools, can effectively guide these improvements.
Using Competencies to Effectively Manage Talent and Drive Business Value By Eric Bosveld, B&A Corporate Advisors February 11, 2021 Many would argue that […]
This article discusses the importance of Pre-Sale Due Diligence in business transactions. Sellers often underestimate the impact of withholding information, which may jeopardize the sale. Conducting a thorough pre-sale due diligence helps identify and resolve issues beforehand. The process involves a comprehensive review of the business, compiling important information for potential buyers and addressing possible queries or concerns they may encounter. It reiterates that disclosure and rectification of shortcomings before negotiations is preferable, as buyers inevitably uncover hidden issues.
The article emphasizes the importance of transitioning from hands-on management to hands-off management to increase a business's transferable value. This involves growing the company beyond the owner-operator's capabilities, delegating responsibility, and nurturing next-level management. Additionally, embracing formal HR practices in firms with a quality management team in place can drive transferable value, with effective onboarding, incentives, and performance reviews. This approach, which is applicable regardless of the business's size or stage, is vital for a successful business exit.
Before putting a business up for sale, it may be important to divest redundant or non-operating assets that do not contribute to the business's core functions or cash flow. These can include real estate or inventory. Selling these separate from the business itself can complicate deals, but can also help achieve a better market value. This pre-sale divesting process involves thoughtful planning and expert tax advice to avoid tax implications, especially when it concerns sales-leaseback agreements.
Improving revenue quality - defined as profitable, sustainable, and predictable sales - enhances business value and marketability upon sale. High-quality revenue typically stems from contracted sales with recurring revenue, subscription services, and customer retention with low churn rates. Management tactics such as leveraging CRM systems and prioritizing growth with current customers can elevate revenue quality. While revenue diversity is beneficial, one must focus on the business's most profitable segments, products or services.
In the M&A process, sellers often present inflated financial projections to attract buyers. However, this can breed skepticism and even harm negotiation positions. Instead, sellers should demonstrate a correlation between past actions and results, present realistic projections based on past performance, and detail all necessary investments for plan execution. Additionally, incorporating a well-crafted business plan and credible financial projections from the outset significantly improves negotiation positions.