Reflections

Develop a strategic thinking muscle amongst your team to build company worth

The first step in preparing your business for a future successful exit, that will make you euphoric, is to ask yourself this question - Are me and my team thinking and dialoging at a truly strategic level or are we more tactical than we should be?

This question seems obvious and many leaders of private companies would quickly say yes, we are thinking strategically. But don’t answer too quickly. Are you truly discussing challenging near term and long term strategic questions or are you guiding the business using short term, tactical thinking that is based on information and knowledge that could be out of touch with reality.

President and General Dwight Eisenhower once said, “Plans are nothing. Planning is everything.” And more recently Mike Tyson wisely shared, “Everyone has a plan until they get punched in the face.”

The essence of these famous quotes is simply this. The real power of strategic planning is in the thinking, not the act of documenting the plan or planning. The planning aspect is simply the tactical piece that captures your thinking in a document so you can act. I’d be more willing to invest in a business where the team is excellent at thinking strategically and fair at the actual documentation/planning aspect versus a team that is weaker at the strategic thinking but great at documenting/planning their tactical thinking. Planning isn’t what is going to build the worth of your business long term, but strategic thinking can be game-changing to your company future worth.

Here are just a few strategic thinking questions to help you think more deeply about this muscle at your business:

• Are you clear on where your company brand and product/service offering are truly positioned in your served market – is your view of this positioning the same perception as your target customer?
• What are the top 5 decision criteria that your target customer thinks through in deciding whether to issue your company a purchase order? Have these criteria changed since COVID and might trends in your industry change them yet again?
• What step could an existing or new competitor take that could disrupt your business?
• What step could your team take that could disrupt your competitors?
• What’s your plan for the period ahead to drive more productivity out of your team/process and improve margins?
• How are specific technologies being applied in your industry and how do you anticipate they will be applied in the next several years to impact your business positively or negatively?
• Of the markets we serve (and want to serve), what is the growth trajectory of each? And what is our unique capability versus competitors that is of value to our target customers?
• What steps could we take to become “stickier” with our customers? Could we build our stickiness either as a result of a uniqueness in our product or service and/or through the customer experience we deliver?

Don’t rush in to planning, which is ultimately just documenting your thinking. Focus on THINKING strategically first. Start by identifying strategic questions you have about your business that your answers need to be refreshed or you realize you don’t have effective answers for. Building the long-term worth of your business doesn’t just happen by luck. If you’re looking to be euphoric one day by a third party paying you handsomely for your company, then start today with building the strategic thinking muscle of yourself and your key managers. Reward your future self by building the gift of strategic thinking today.

Avoid a common mistake when preparing for a company sale

Ask yourself this question – each year when our company does strategic planning, do we build our plan in parallel with building our new budget?

If your answer is yes, please reconsider. The reason is this. Budgeting has natural boundaries built into it and in great strategic thinking and planning, you don’t want to be encumbered by anything that might block the free flow of innovative ideas. Too often, executives go into their strategic planning already having financial boundaries in their heads related to revenue, margin and investment targets. These financial variables then steer the planning and will often squelch any creative thinking and dialog amongst your team. You inhibit members of your team from being confident to raise what if thinking because they already know the constraints that the budget will place on many creative ideas, so why bother bringing the idea up in the first place?

But what if you and your team initially remove the boundaries that a budgeting mindset creates and open up the thinking to include more what ifs? What if you talk with your team about the initial removal of financial boundaries, could this open up healthy new dialog? Could this have you working on new ideas and paths for your business that will provide greater excitement for your future potential acquirer to benefit from and therefore reward you with a premium valuation? Could new thinking help you from getting disrupted by a competitor or even play the role of the disrupter in your market space?

Obviously, the reality of financial constraints (i.e.: how much capital is available for investing in new initiatives) has to ultimately enter the equation. But it shouldn’t impede the initial creative thinking that could generate new ideas that ultimately may not require a lot of capital to execute. Owners that take this approach often find that there are many creative ideas that come forth and ultimately some don’t require the capital investment or risk that they were first concerned about. Wouldn’t you rather discuss the creative ideas and then modify or eliminate the idea if you are financially constrained to deliver on them versus never having discussed the idea in the first place? Don’t forget the adage, one good idea often leads to another.

The business environment continues to change around us. Lead your team to navigate the market opportunities and challenges that your business faces with creative and innovative thinking. This thinking is the first step in doing great strategic planning. Yes, budgeting and financial planning have to enter the discussion, but don’t let it influence the discussion initially. Building this thinking and planning muscle ahead of budgeting will have you on a better path to building the long-term worth of your business.

When you sell your company, the acquirer will look to understand your position in the market and it could impact valuation

As we’ve posted in many blogs, it’s more than just your financials that a future potential acquirer will consider when placing a valuation on your company.  Another non-financial factor they will look to understand is where in the market(s) you serve are you positioned? Where your company is positioned may excite the acquirer or it might concern them as it pertains to where they could take your business in the future.

What is a market position? It’s managing the 4 P’s (Product, Price, Place, Promotion). How your team manages each of these will ultimately position your company in the minds of your customers and you’re looking to have this perception be one that differentiates you from your competition in a positive way.

Here are questions to facilitate your thinking and to discuss with your team:

• Are we intentional about where we position ourselves in our market(s)? (i.e.: are we positioned in the low, mid or high end of our market as it pertains to the 4 P’s)?
• Are we confident that our target customer’s perception of where we are positioned in the market aligns with what we want that position to be? Or as an example do we view our position as serving the high end of the market but the customer perceives us to be in the lower tier of the market in terms of capability or offering or quality, etc?
• Does our market position appear that we are trying to be all things to all customers, or are we managing our market position to serve a target group of customers?
• Every industry and market is separated in to 3 segments; Good, Better and Best product and service offerings – where in your market(s) is your company positioned? And do you know which of these 3 is growing, flat or shrinking and could your future business be impacted by this shift? (i.e.: during good economic times, the Better and Best segments might be growing versus the Good and in down economic times, Best may decline as the buyer/consumer looks to save money moving to the Better or Good.)

Don’t let the market position your company for you. If this occurs then you have to hope it’s being positioned in a positive light. Be intentional about how you and your team manage the 4 P’s so you position your company exactly in the market where you believe it will best stand apart from the competition. Doing so today will pay you great dividends at time of a future exit in the eyes of an acquirer.

Alignment around strategic aspects of your business are crucial to building worth ahead of a future company sale

Ask yourself this question – if I asked my key managers individually the following two questions, would their answers be the same which would show we are aligned or would they be different?

• What is our company overall #1 strategic need –
  • is it we need more revenue?
  • more profit?
  • better fulfillment of our product or service?
  • or to deliver a better customer experience?
• What are the top 3-5 criteria that our customers use in deciding what vendor to select for our type of product/service? In other words, what 3-5 things must we be able to show a customer we offer before they consider doing business with us?

Don’t underestimate the power of having this discussion with your key managers. If key managers on your team view the answers to these questions differently than you do, that lack of alignment could be impeding your company worth building progress. Are they right, are you right? – what a great discussion to have and determination to make to eliminate worth building barriers and help you achieve a better exit one day.

Having the right answer can be important on your path to a euphoric exit

Sellers will many times be in a discussion with a potential acquirer regarding a sale of the business and the question will arise from the acquirer – “so we don’t waste your time, how much are you looking to get for your company?”

On the surface, this seems like a fair question and certainly phrased in a way that shows respect for you. It is however, a loaded question and one most times you do not want to directly answer.

In reality, your business is worth whatever the acquirer believes it’s worth to them. Yes, you might have your idea of what it’s worth but unless the acquirer agrees, there won’t be a deal getting done. So, the first offer should come from them, not you.

The acquirer could in fact be asking simply because they need to understand the general scope of what your valuation thinking is to see if you’re anywhere close to their thinking. However, in many cases they ask this question in the hopes that your answer might undervalue your company. How do you know they don’t see unique value in your business and may in fact be willing to pay you more than you expected but you hurt yourself by throwing out a number.

When dealing with an acquirer, if they ask you what valuation you have in mind, the answer should be “when the time arrives that I sell my business, I’ll let the market determine what the value is. What I believe is moot, it’s what the acquirer’s in the market believe it’s worth.” This is a professional way of saying I’m not going to set the valuation bar for my business, you’ll need to.

The other reason you don’t want to throw a number out first is you’d be doing so most likely without ever sharing the bigger narrative about what your business is, why it’s unique and its future ongoing potential (see our blog post of May 18, 2024 on this topic). Absent conveying this narrative, any valuation discussion is baseless and therefore more likely to hurt you then help you.

Bottom line – if asked this question, be prepared with your professional reply that doesn’t create the opportunity for an acquirer to undervalue what you’ve built. Achieving a euphoric exit one day requires many effective steps to be taken and managing this question is certainly one of them.

Many acquirer's want you to have a strong organization they can leverage

Many sellers believe that their future acquirer will just base their purchase valuation on the financial performance of the business. Certainly, the financials and the projections of same will factor into the valuation the acquirer places on your company. But, there are other factors.

In the M&A world, there is an expression that the acquirer is placing their bet on the jockey more than the horse. Meaning, the product or service your company provides is certainly important but what many acquirer’s are drawn to is how strong is the organization, your team, that they could leverage to drive continued solid performance.

Your employee hiring, retention and overall management plans are key to building the organization that could one day help excite an acquirer. So, ask yourself these questions as they relate to having a strong organization:

• Do we have people in key roles that know how to help us get to the next level of performance or could we soon outgrow their education and experience level?
• Do our key managers have educational and experience backgrounds that fit well with the job they do or do we have people in roles they aren’t specifically suited for?
• Does our company have a healthy culture?
  • Do we empower employees to make certain decisions on their own
  • Do our employees work well together, as a team
  • Do we hold people accountable for doing their jobs consistently around our company or are we inconsistent?
  • Do we promote from within – are we grooming the future group of key managers?
  • Do we have a compensation and reward system that helps drive results?Building the long-term net worth of your business will require multiple pieces of the puzzle to be in place. One is certainly the strength of your product or service and the other is your financial performance and projections. But don’t underestimate your organization and what it will mean to your future acquirer. Start giving more thought today to your team and your culture as time invested in this important area will pay you a dividend many times over in the future.

Building the long-term net worth of your business will require multiple pieces of the puzzle to be in place. One is certainly the strength of your product or service and the other is your financial performance and projections. But don’t underestimate your organization and what it will mean to your future acquirer. Start giving more thought today to your team and your culture as time invested in this important area will pay you a dividend many times over in the future.

If planning to sell your business one day, this muscle is critical to build today

When the day comes that you want to sell your company to a third party, they will ask you to share your strategic plan.  Having a plan to share could help excite the acquirer about the ongoing potential of your company and underpin their making a strong offer to buy your business.

If such a benefit to having a plan can help your business down the road, and certainly today as well, then why do so few companies have an effective strategic plan?

The answer is that the executives leading the company are lacking in knowing, or working, a repeatable, scalable model for developing their plan. Each time they think about developing a strategy they approach it differently and therefore never build a repeatable, scalable muscle in this critical business discipline.

Imagine if every time a golfer teed off, they held the club differently, stood differently, swung differently – the results will rely on luck to stay on the fairway.  Imagine if the field goal kicker in a football game had a different approach to kicking a field goal each time he attempted one – the results will rely on luck to score the points.

It’s the same with building and implementing a strategic plan for a business. It’s a muscle that must be developed over time. And this muscle is only established if the executive adopts a consistent model for developing and implementing a plan. Approach it differently each time and you’ll be relying on luck to achieve results. But select a repeatable model for building your plan, and you will greatly increase the likelihood of achieving your desired end results and not leaving it to chance.

We regularly do guest speaking on the topic of building the strategic planning muscle for companies, give us a call (949.874.0787) so we can share the 4 Part Campaign with you. Use time as a friend in optimizing your company for a future euphoric exit. Building your teams strategic planning muscle will be a key part of building your company net worth.

Accelerate revenue growth to build your company net worth

Preparing to optimize your business for a euphoric company sale one day entails many steps. A key area we work with clients on is building a scalable sales model. But too often we find company owners not giving enough attention to the silent salesperson on their team.

Ask yourself this question – when is the last time we sat together as a team and reviewed/updated the quality and effectiveness of our customer sales proposal document and process? When a customer asks for a price proposal, your team kicks into gear in developing, submitting and following up on that proposal. Once in the hands of your potential customer, the sales proposal is acting as a representative of your company or what we call your silent salesperson. What’s the quality of this representation?

If it’s been a while since you evaluated the effectiveness of your sales proposal process, here is an insightful template (Template for Invigorating Our Sales Proposal Process) for facilitating great questions to discuss with your team. You have visibility on what your sales team is doing, now is a good time to assess the quality of your silent salesperson and any improvements could greatly enable your building of company net worth.

The Sale & Purchase Agreement (SPA) is one to familiarize yourself with before selling

When you sell your business one day, the catch-all legal document that will capture all key aspects of what you and the acquirer have agreed upon will be contained within the Sale & Purchase Agreement or SPA. There will be various types of legal documents that your lawyer and the acquirer’s lawyer will be drawing up but none more important than the SPA.

For a typical transaction, the SPA can run 20+ pages on smaller transactions and grow to over 100 pages for larger deals especially when including all the related schedules that come along with the document. This alone tells you that it will contain a great level of detail about the deal surrounding the sale of your company. There will be many points that get negotiated between you and the buyer besides just the purchase price. There will be many key points to be negotiated and you don’t want these coming as a surprise. Surprises during an exit event mean stress for the seller and can impact your ability to achieve your euphoric exit. So here are just some of the key items you’ll be negotiating with the acquirer for the SPA:

• Will there be any funds held back on the day of the transaction successfully closing and if so, how much and for how long?
• What types of issues can the acquirer come to you post transaction closing and claw money back from you?
• What types of issues will the acquirer ask you to represent your specific knowledge of to eliminate their exposure post transaction closing? e.: your knowledge of potential future loss of a customer or contract, a possible product warranty issue, a possible employee or customer litigation, a possible environmental issue with a facility.
• How will post-closing adjustments be calculated specific to working capital? There will be estimates done for the day the transaction successfully closes with accounts receivables and payables and inventory but there will be a “true-up” months later, how will this be done?
• What are the “conditions to closing” that the acquirer will require you to provide? This will be a listing of all the conditions the acquirer must have you comply with such as ensuring key customer approvals will rollover to them, rollover of key contracts, transferability of facility or equipment leases, employment agreements in place with the seller and/or key employees and several others they may require.
• What indemnifications will the acquirer demand from you and visa versa post transaction?

Too often sellers are surprised by the content of a SPA and they find themselves having to rush their thinking and decisions which only serves to raise their stress levels. Sit with an exit optimization professional and use time as a friend to understand the SPA content and remove the unnecessary surprises that often arise during the sale process.

The gift of a smart pricing strategy can reward you handsomely when selling your business

Ask yourself this question – how do we know whether we are maximizing our pricing in our marketplace to better enable our profitability?

Too few executives leverage this gift with their business. We always share with our clients that the two best gifts you can give your business are a solid pricing strategy and a solid productivity enhancement plan. When the day comes that you want to sell your business, you can excite a potential acquirer by showing them above market margins you are achieving as a result of smart pricing.

It’s a gift because it’s the quickest path to building profitability. And it’s also a gift because in developing your pricing strategy you will greatly enhance the situational awareness of your team in terms of how your company truly stacks up in the marketplace.

Here are some questions to sit with your team and discuss:

• When is the last time we reviewed our price positioning in the market for each of our products and services to understand how we compare to leading competitors?
• For each of our products/services, do we know if we are priced at, below or above our leading competitors?
• When is the last time we reviewed our products/services offered and how they compare feature & benefit wise versus leading competitors? If we have products or services that provide our customers’ greater value than competitors, does our pricing reflect this?
• Have we leveraged our customer sales data to truly understand the impact on sales when we’ve raised or lowered prices in the past?

Don’t miss out on the gift of pricing for your business. Strengthen your pricing strategy and accelerate building your company net worth.

Building customer stickiness is a direct path to building company net worth

When the day arrives that you want to sell your business, the difference between being euphoric with the outcome and disappointed could lie in a single area – customer stickiness.

Customer stickiness is another way of saying customer loyalty. Having customer loyalty leads to your team’s ability to confidently project future growth. The ability to confidently project future profitable growth goes a long way in making your business attractive to potential acquirers.

Sit with your team and discuss steps you could take to build customer stickiness – discuss things like:

• What percentage of our customers purchase two or more products/services from us?
• If we created a bundle of our products or services, would that be more compelling for customers versus them buying our products or services individually?
• Could we offer our customers better pricing or better purchasing terms if in turn they are willing to sign an annual purchase agreement with us? A potentially lower margin could be offset by getting greater visibility to their purchasing requirements which might help our purchasing economies and/or help our production/fulfillment efficiencies. Note, these agreements are viewed positively by future acquirer’s as long as the agreements don’t lock you in to fixed pricing that may impede your future revenue or profit growth with that customer.
• Does our product or service provide us an opportunity to offer our customers a subscription type service and in turn, provide us high visibility to revenues?
• Could we develop (or acquire) a product or service that is truly unique from our competition – putting us in the position of gaining a sole source position with some or all of our customers?

Use time as a friend in building your customer stickiness. With each level of stickiness you build, you’re automatically building the overall worth of your company.

Which of these will enable your company worth

Ask yourself this question – for me to enable building even greater shareholder value, or the net worth of my company, is it our organization culture, our strategic plan or our strategic plan execution that we need to focus on?

We share with business owners, building their company net worth is either occurring because of these three all being aligned and well managed or it’s being impeded by one, two or all three of them. Knowing which for your business is crucial. Step back from your day to day running of the business and assess where you are with these three critical factors. Gaps in any of the three will lead to gaps in your achieving the company net worth you desire for one day getting to your euphoric exit event.

Organization Culture – do you have the right people in the right seats with the right focus for building company worth. Are your people trained and empowered to focus on the customer and do they have a passion for working well together as a unified team in delivering a competitively unique and compelling customer experience?

Strategic Thinking & Planning – does your team have a documented plan as to where you want to take your business? Is your team good at thinking and talking at a strategic level about what markets and customer types you want to serve? The products/services you want to offer and how you will offer them uniquely in bringing value to your customer or client? Hope is not a plan so building a strong strategic thinking and planning muscle within your company is essential to building the company that will one day enable you to command a premium valuation for you at time exit.

Strategic Plan Execution – is your team aligned with you and with each other in terms of what initiatives your plan calls for? And does your team have a good track record of successfully implementing on your plan?

Give the opening question to this post some serious thought about your company. Without delivering on all three of these critical factors you would have to rely on hope and luck to achieve your desired future exit event. But being honest with yourself today and identifying where these three may need improvement is a giant first step in addressing any gaps to you achieving a future euphoric exit event.

Think T.O.P.S. to achieve yours

Achieving a euphoric exit event is obtainable. Many have but unfortunately most don’t.

For those that did achieve theirs, they reached the pinnacle of professional success by selling their company and receiving the desired cash, deal structure and post-sale life they wanted,

And for those that did, they followed the formula and this formula we call T.O.P.S.. Here is an article (read Achieving Your Euphoric Business Exit here) we wrote a couple of years ago and offer it here again because it is so important for owners and CEO’s to have this formula in mind every day.

Don’t lose another day of working the formula and getting you on your way to your future euphoric exit event.

Drafting it early will enable your future euphoric exit

When the day arrives that you desire to sell your business, you will need to assemble various pieces of information that will be used to attract potential buyers. One central piece of information you’ll need is referred to under various names such as a Confidential Information Memorandum (CIM), Management Presentation or Pitch Deck.

The important purpose for this document is that it’s your opportunity to tell your company story, your narrative about what your company mission is, why it’s special, how it’s been performing and forecasting its future potential and overall how it’s a great business for an acquirer to benefit from owning. It’s designed to help you excite an acquirer about what it could mean for them going forward.

In working with our clients, we share samples of these CIM’s/Management Presentations/Pitch Decks and we do this at least a year (more often two years) prior to beginning the exit process. There are multiple benefits for reviewing, even drafting, your document at least a year prior to exiting:

• Will help you begin to see what types of data you’ll need for populating the document and give you time to pull it together if not already readily available.
• Help you begin to draft your narrative about why your company is special and in doing this, it might identify gaps still present that need to be addressed prior to attempting to attract acquirers.
• Will help ensure you are tracking and ready to share key metrics about a company such as yours that a typical acquirer will expect you to be able to present to them. Having required metrics and attractive performance will go a long way in attracting an acquirer to pay a premium value.
• Will help facilitate very healthy and strategic dialog and thinking about your company that will have near term benefit and will also have benefit when you decide it’s truly time to begin the exit process.

Call us (949.874.0787) to schedule a time to show you some sample documents. Reviewing these years ahead of your exit could be very enabling to achieving your future euphoric exit event.

Knowing the difference can help you optimize the future sale of your company

Ask yourself this question about your sales team – when they are speaking with existing and potential customers, are they being interesting or interested? A sales rep trying to be interesting is in sales mode, jumping into conveying what your company has to offer its customer. A sales rep trying to be interested is in listening mode as they ask questions to first understand the customer wants and desires. The most successful sales reps start by being interested and then know when to move to being interesting.

As we help clients prepare for their future euphoric exit event, a common step we take is to help build the capability of the sales team. Doing so very often increases profitable revenues which in turn helps build the long-term net worth of the business. It’s common for us to find that sales personnel are in a comfort zone, almost robotic in explaining what their company does and even how their company is different before ever first looking to listen to understand the true customer needs. The bridge they are missing is first understanding what the customer is looking for in effective detail and then bridging their need to how the company can best meet that need.

Meet with your sales leader and ask the following questions:

• What questions do our salespeople ask when meeting with an existing customer to determine if the customer needs or wants are changing? Don’t assume a customer need or want never changes.
• When meeting with a potential customer, what questions are our salespeople asking to ensure we truly understand their needs and wants? How are we determining if this potential customer could be a good fit with our business? Don’t assume all customers are good customers.
• Are our salespeople asking open-ended questions so we can listen to first understand their needs or are we asking close-ended questions that only elicit a yes or no answer so we don’t learn very much?
• Have we given our salespeople the profile of the type of customer we want to do business with….and those we do not?
• Once our salespeople are interested and learn truly what a customer is looking for, what is the sales pitch they then give to be interesting? Is the pitch conveying why your company is unique or is it a sales pitch any competitor could also be giving?

The bottom line here is understanding the difference between your sales team being interested versus interesting can be meaningful to your long-term profitable sales growth. Don’t assume, meet with your sales leader and members of your sales team and assess whether they are striking the right balance of interested and interesting. If too much interesting and too little interested, with some subtle changes you could meaningfully stimulate the growth trajectory of your company and enable your future euphoric exit.

Hitting revenue and profit projections during due diligence is key

Ask a business broker or investment banker what top headaches can arise during due diligence and they will tell you….if the seller starts missing their revenue and profit projections while the acquirer’s due diligence process is underway, a can of worms will get opened.

Put the glasses of the acquirer on. They receive your financials and a management presentation of some sort that together excite them to make an offer. But during the due diligence process, they ask for current financials for the most recent month and performance shows a miss to your budget or projections you’ve given them. And if this occurs over multiple months of a potential due diligence process, the acquirer has to now question whether they are buying your business with a new, negative trend beginning. This adds time and questions to their due diligence process and brings more stress to the seller as they try to explain the miss.

It's best to only plan for your exit process to occur when you are highly confident that positive performance will continue during the acquirer’s due diligence process. Prior to starting the sale process, sit with your team (sales and finance) and do your best forecasting to either give yourself the confidence that timing to sell could be good as performance is highly likely to continue or if not, modify the timing of your exit. Don’t let your future euphoric exit be negatively affected at the last minute by this issue. Add this preparation step to your effective exit planning, or as we call it, exit optimization.

When selling your business, be ready for a potentially "invasive" due diligence probe

Owners of private companies understand they will have to allow the potential acquirer to conduct due diligence on their business prior to buying it. But, what surprises many is how detailed, even invasive, this due diligence can be. We refer to it as a probe and it’s one that you’ll want to ensure your company is ready to successfully withstand.

We work with our clients in conducting due diligence dress rehearsals at least 1 year prior to beginning the exit process. This dress rehearsal walks through, in detail, all aspects of a business to ensure it’ll be ready to support an acquirer’s due diligence. Here is just a brief snapshot of some of the key areas you’ll need your company to be able to support:

• All legal documents reflecting company ownership are current
• Financial statements are accurate for at least the past 3 years and are reported to your industry norms
• Gross margins at the customer and product/service level are available, not just reported at the consolidated level
• Employee organization chart, compensation & benefits plan documents and employee handbook are all current
• Customer purchase history for at least the past 3 years is accurate
• Vendor purchase history for at least the past 3 years is accurate
• Sales opportunity pipeline reflecting future growth potential is documented and available
• Critical company procedures are well documented – such as work orders, bills of material and standard operating procedures are current.

We offer an online tool for conducting a probe of your business to help you conduct a private due diligence dress rehearsal. Use this link to our diagnostic tool (Yosemite Associates Due Diligence Dress Rehearsal) or call us for help at 949.874.0787.

Don’t wait until you are in the throws of an acquirer’s due diligence to find out you were or weren’t ready for it. Use time as a friend to conduct an effective dress rehearsal and ensure that your future due diligence will go smoothly and support your euphoric exit plans.

Ensure your business is ready for this key due diligence step

Company owners often think of due diligence as a time for the lawyers and accountants from the acquirer to probe their business. Although this is certainly part of the exit process, it’s not all of it. What surprises the seller often is when they hear their potential acquirer is requiring to speak to a variety of the selling company’s customers ahead of the transaction officially closing. Ask yourself this question, when I sell my business one day, am I highly confident that I will be able to present a good cross section of my customers for the acquirer to talk with that I know will speak highly of my company?

In many transactions, acquirers like to speak to customers of the selling company anywhere from 2 to 10 weeks prior to the official closing of the transaction. The acquirer prefers doing these as early as possible in the due diligence process but as the seller, you will want these voice of the customer calls to be made much closer to the final transaction closing date. The timing of when these calls will be conducted is generally a deal negotiating point between acquirer and seller.

At least 1-2 years prior to selling your business, you’ll want to give thought as to who you will one day present to the acquirer for conducting their voice of the customer diligence work. Have you established a strong relationship with customers so as to give you the confidence they will speak highly of your company when the acquirer speaks with them? The acquirer will ask your customer questions like; why do you select this company to do business with? How is this company better than alternatives you have available? Do your plans include continuing to purchase from this company going forward? Where would you like to see the company improve or possibly expand their products/services?

The bottom line is this. Preparing for your future euphoric exit event takes years to do properly as there are many facets to the preparation. One of these relates to establishing a strong working rapport with a cross section of your customers so that when exit due diligence time arrives, you’ll be confident in your preparation for this key step. Being ill-prepared for this step could be a reason they decide to back away from the transaction or try and negotiate a lower valuation…both bad outcomes but with the right exit preparation planning, can be easily avoided.

The right messaging today will help build value for a future company sale

Ask yourself this question, are my internal and external salespeople delivering a consistent and effective message to our current and target customers?

It’s very common in private companies to have salespeople that have developed their own messaging that they are delivering to existing and potential customers. But this messaging may not align with what ownership wants, marketing is trying to deliver or that the customers are finding effective.  This concept sounds basic but we often find this disconnect in businesses.

Your company position in the market in the eyes of your customers (existing and new) is a result of the message your team is delivering. This message includes what the company does, how it’s unique and what value a customer can expect to derive from working with your team. When done right, your messaging can enable profitable sales and this in turn can enable building the value, or net worth, of your company. But a message that is inconsistent or ineffective in your marketplace can do the opposite to your company net worth. And when the day comes that an acquirer arrives to consider purchasing your business, during their due diligence, they could uncover ineffective market messaging from your team and view this as an inhibitor to future growth and this could impact their offer.

Try a simple exercise. Sit over a cup of coffee with each of your sales and marketing team individually or better yet make sales calls with them. Listen to the sales pitch being delivered and listen to see if the message is consistent from salesperson to salesperson, is the message aligned with what you want being conveyed and is the message still effective in today’s marketplace.

Don’t assume your sales and marketing team messaging is consistent and effective in their daily interactions with customers. Confirm or improve this area of your business and have your business on its way to building more scalable and consistent sales growth and building the enterprise value of your company.

It can be avoided by taking the right preparatory steps in your company sale

Deal fatigue is when the acquirer and/or the seller grow tired of the transaction process and often results in either withdrawing from the process. It most often occurs because the initial excitement of doing the deal wanes as both parties move through the exit process. You won’t generally see deal fatigue occurring in the first stage of the parties discussing and agreeing on the key deal points, but it occurs most often during the stage of due diligence or the final stage of negotiating final deal legal documents.

You would think deal fatigue would be uncommon but it’s not. It can be quite common especially in deals where the seller hasn’t effectively prepared for the sale. Here are common causes of deal fatigue:

• The initial acquisition offer negotiated is too vague between the parties and both assume that the details will be hashed out later in the process by the lawyers. A seller and acquirer should both focus early on ensuring they establish a detailed offer document.
• Acquirer or seller aren’t fully committed to applying the essential resources needed to move the deal process along efficiently and effectively. This could be because either party has other priorities and isn’t able to focus their people (employees or third parties) on expediting an efficient deal process. For the seller, it’s key to ask the acquirer early in the acquisition discussion whether they can apply the necessary resources (their employees and third party partners they will be engaging to do the deal) to move the deal along efficiently. And the acquirer will ask the same of you as the seller.
• The seller isn’t fully prepared to support the acquirer’s due diligence data requirements. We tell our clients early on that they will have two decisions to make one day. The first is the decision to sell. The second is the decision as to whether their team and business are ready to support the acquirer’s due diligence timeline. Conducting a due diligence dress rehearsal at least six months prior to beginning the sale process is important to avoid this potential cause of deal fatigue.
• Deal negotiating that too early on gets controlled by lawyers or accountants. This is a common cause of fatigue if the principal of the seller and the principal of the acquirer move the deal discussions and negotiations too early on to third parties like lawyers and accountants. Principals should work together to establish the key deal points, certainly with the help of an M&A lawyer but they should not be playing point position at this early stage. Principals should first agree upon deal points such as deal valuation and methodology for establishing the value, deal structure, source of funds, working capital adjustment approach that will be used, due diligence timeframe and process, assimilation plans for seller employees and facilities and other key deal points. In the most efficient deals, these points are negotiated in concept first by the principals and captured in an Indication of Interest or better yet the more detailed Letter of Intent and then this is handed to the lawyers and accountants to execute on.
• A seller or acquirer who keeps changing initially agreed upon deal points or who too late in the process introduces new critical deal points so that either party begins to feel like the deal keeps changing. It’s most often the seller that causes this and it’s because they weren’t well prepared in identifying what their critical deal points were going to be before starting the acquisition discussions.

Optimize your exit preparation to ensure you and your team aren’t the cause of deal fatigue. Talk with an exit planning professional like Yosemite Associates to ensure that your deal won’t fall into the normal traps that cause deal fatigue. With the right exit preparation, or what we call exit optimization, you can reach your desired euphoric exit.