Preparing for Exit

Contact Us

Some of you may be thinking about selling your business.  The team at Pro Back Office support our clients from the birth of their business to the sale of their business.  If you are a business owner, you may recognize where you are in the cycle of your business.

A Team of our CFO’s have created some words of wisdom in considering the sale of your business.

START EARLY

  • Many valuation professionals and investment bankers encourage companies to formulate and implement an exit plan 3 to 5 years prior to the desired exit window.
  • You can take three to five years to hone your strategy and map executional actions to achieve and maximize the plan.

In starting early, you are identifying steps to take or should consider taking that will result in positive benefits right away.

  1. You can start making more profit immediately
  2. You will demonstrate a  pattern of higher earnings, which substantiates a trend and should potentially increase your business valuation.

BUSINESS VALUATION

While there are many different formula approaches, for a business valuation, the valuation generally comes down to:

Adjusted Earnings or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
x
A Valuation Multiple

Improvement in the multiple will generally have a larger impact on your business valuation.  For example, increasing from a multiple of 3x to a ultiple of 4x is an increase of 33%.

SOME FACTORS THAT CAN IMPROVE YOUR MULTIPLE

  1. Sustainable record of growth in revenue and number of customers
  2. In-place management team that has a solid long-term incentive plan
  3. Well defined and documented internal processes that provide a highly scalable overhead structure
  4. A proven project management approach
  5. Solid contract administration
  6. Up-to-date, off-the-shelf, widely-used software

Generally, the better the overall management of your business, the higher the multiple and consequently the higher the value.  Indicators of solid business management include the following:

  • Reviewing monthly financials including comparison to budget/plan
  • Reviewing monthly balance sheet
  • Monitoring leverage ratios
  • Monitoring key performance indicators

Strong business management should include the ability to:

  • Explain company financial results with operating aspects
  • Demonstrate the existence of a committed Management Team who can deliver budgeted results
  • Maintain strong internal process, software and administration
  • Predict business performance
  • If applicable, provide analysis of performance to estimate at the job level
  • If applicable, maintain and manage a WIP schedule for projects

While these are all tools to improve your current business performance that will deliver profit and manage risk now, they are also steps that will result in an enhanced valuation upon the sale of your business.

probackadmin