Reflections

Just because a friend got a great multiple doesn’t mean you will

When the day comes you look to sell your business, the deal you get will be custom for your company. Don’t fall into the trap of believing that what a friend received for their company will be what you get.

It’s common when we meet company owners and CEO’s to hear that a friend they know with a company in their market space recently sold and “got a great deal”. They then start to assume that the deal their friend got will be the one they will get. Most time, it’s not.

It’s fine to use other transactions in your market space as a reference point but not as a definitive. No two businesses are alike, therefore no two transactions will be alike. Your company will be unique in key areas such as;

-          - Scale of revenue and profit

-          - Quality of the sources of revenue and profit

-          - Customer or supplier concentration

-          - Visibility to future growth – predictability of that growth

-          - Infrastructure to scale further

-          - Intellectual property or a special sauce that provides a competitive advantage

-          - Quality of the organization and team (no reliance on selling ownership)

Begin preparing today to ensure this list above is getting quality attention and improvement by your team. Focus in these areas and you will greatly increase the likelihood of one day receiving a strong offer from a third party. But not addressing these areas and just hoping to get what a friend said they got is a surefire way to a disappointing exit.

Did you grow your company worth in the first half of the year

When you look to sell your company one day, an acquirer is going to look at your business in all aspects but very closely in certain aspects. Do you know which aspects they are going to analyze the most with your company?

You want to know today what these aspects are, or as we call them, company worth drivers. These are going to be what drives up or down the exit multiple the acquirer applies to your company. Deliver on the drivers that the acquirer will be looking most closely at and you will likely achieve your euphoric exit event.

Here is a template (Company Worth Template here) to help you think about the company worth drivers for your company. This template contains three pages:

-     - A listing of the most common company worth drivers. Not all of these will apply to your company, but you want to identify which ones will. And there maybe some unique to your type of business or industry, but these will get your wheels turning.

-     - A sample showing what the template for your company could look like, meaning once you’ve identified the company worth drivers for your company you could track them on this type of template.

Give us a call (949.874.0787) if you want help thinking through determining the company worth drivers for your company. Identifying and working them today will be a great gift to your future self at time of exit.

Landscapes change and can impact your company worth

When you look to sell your business one day, the acquirer will most likely have a very good understanding of your marketplace. They will know which parts of your market are becoming more commoditized versus where customers are still willing to pay for value. They’ll even have an idea of your competitive landscape and where you fit within it. Are you monitoring these things?

Knowing your market landscape and where your company plays within it can be of enormous help to you as an owner and CEO. It can help you make many strategic decisions and it will help you know where to focus in building the worth of your company.

What will your market landscape help you understand:

-     - How large your served market is and which parts are shrinking, which parts are growing – this will help you direct your resources to the right market segments at the right times.

-     - What the various subsectors are for your overall market – this will help you learn to understand the nuances of each subsector so you can ensure your messaging and portfolio meet the needs of each that you want to serve. It will also help you know which subsectors you can move toward when you’ve tapped the segments you’ve been serving.

-     - What the Good, Better and Best markets are – every industry has customers that just want the Good product or service, others that like to go upscale to something Better and other customers they only want the Best. Which do you play in and do you understand the unique needs of each.

-     - Where the value is – every industry evolves and what today is viewed as high value to the customer, over time becomes a commodity. An example would be looking back to the 1980’s and 1990’s, players making all types of computer hardware realized high company valuations as customers were willing to pay a premium to get this hardware. Then come the 2000’s, the value shifted to the software. Computer software became where the value was appreciated by the customers and hardware became more of a commodity. The value of the hardware companies decreased and the value of software companies increased. And now we’re seeing another shift, the value of software companies is decreasing as a result of the advent of AI. Are you monitoring this value evolution in your market.

-     - Where you stack up versus competition – knowing this will help you see where you’re unique in the market versus where you look like everyone else. Knowing your competitive positioning can help in building and protecting your competitive moat.

Developing your market landscape isn’t just a nice to have. It’s a valuable strategic tool that can help you in making many strategic decisions about your business. Our job as owners and CEOs is to build company worth. Leverage the market landscape tool in building yours.

Knowing what your focus should be will grow your company worth

Was doing an early onboarding of a new client and the following question arose – what is your job as CEO? This client said he works hard every day, puts in lots of hours with his team and customers but agreed it is worthwhile to challenge whether he’s spending his days most effectively as we now work on building his plan to a euphoric future exit.

The answer to the question of what a CEO’s job is, is very straightforward – your job as a CEO is to:

1. Build and protect the brand of your company –your brand is your promise to your customers. When they hear your brand, it conjures up a perception. Ask yourself, what do I do daily/weekly/monthly to ensure that me and my team are effectively building and protecting my brand in the marketplace so that when existing and potential targets hear our brand name, it conjures up a positive perception.

2. Build and protect your culture – culture eats strategy, it can kill a brand and it certainly will destroy company worth. Ask yourself, what do I do daily/weekly/monthly to ensure that my organization culture is truly something to be proud of. Not just in some departments but throughout the organization?

3.)     Deliver results – good CEO’s know the difference between motion and progress. Ask yourself – do I have a good strategy for growing my business and on a daily/weekly/monthly basis am I measuring the right targets and therefore knowing whether we are making progress or not?

There should be no mystery to what a CEO’s role is. Revisit your role and focus and ensure it’s growing company worth.

Answering these questions can help you protect, even build company worth

When you look to sell your company one day, any acquirer coming to kick the tires will most likely bring a strong awareness of your market dynamics. These dynamics could impact the purchase price they will be willing to pay you. It’s for this reason that you would be best served to regularly monitor your external market dynamics and have an external situational awareness of how to navigate the findings. Here are good standard questions for monitoring your external situational awareness:

- How big is the market we serve? What are the sub-segments and what is the growth rate of each?

- Where could we be disrupted by an existing or new competitor?

- Is there a part of the market where we could be a disruptor?

- Have our customer’s decision drivers changed? How might they change going forward?

- Are there any changes happening or potentially going to happen to our supply chain?

- Are there technologies currently or potentially going to change our industry and our business?

- What is our competitive landscape? Are we facing new competitors and if so, what changes might they be bringing to our industry?

- Are there or could there be upcoming Legislation changes that could help/hurt our business?

- Will the economy of the markets we serve be an enabler or barrier to achieving our growth targets

- Is investment money flowing in out of our industry from strategic players or private equity or venture capital? Do we know the reasons behind the investment dollars entering or leaving our market?

- What changes are happening or could begin to happen related to attracting and retaining needed labor?

Too often leadership teams only possess an internal situational awareness, what’s going on inside their company four walls But in effective strategic thinking and planning, these are basic questions you’ll want to explore with your team. The answers could provide insights on steps you could take to protect your business and even grow it. Meet with your leadership team and start building the muscle of discussing questions such as these. These are questions you’ll want to regularly have on your radar screen and not just once a year.

Are you focused in the right area when screening for talent

When you look to sell your company one day, the acquirer is very likely going to size up your team to see what talent they will be adding to theirs. This makes the decision of adding key personnel to your team, especially senior level talent, not only important today but also important to your future exit.

Too often, many executives aren’t good at screening for this needed talent. The issue we see is that executives miss a key element when conducting an interview. They miss whether the candidate in front of them would be the strongest at achieving the deliverables needed to be achieved by this role.

Executives will interview for education, work experience, cultural fit and these are important. But, what you want to be most clear on is in the first 90 days, 6 months, 1 year, 2 years – what are the specific deliverables you will need from this position. Once you are clear on targeted deliverables, and be as tangible as possible in identifying them, then craft your interview questions.

You could interview candidates that meet various criteria within your job description for the role. But that’s not to say they will be the right candidate for achieving the deliverables you’ve set. Very often job descriptions are broad and vague, get specific as it relates to deliverables.

Starting today, when you are screening for key talent to join your team, supplement your interviewing by identifying the deliverables for the role. Once you are clear on these, then set your interview questions to look for the experience and skills that directly relate to your desired deliverables. Taking this step will have you conducting better screening and could have you on a better path for adding talent than can help you accelerate building the worth of your business.

Do your investment decisions today bridge to your company worth

A good sixth sense to develop is knowing when an investment decision you’re facing is one that could impact the future sale of your company and which ones won’t.

In making an investment decision in new hires, systems, equipment or capacity, there are multiple lenses that you will want to look through in evaluating the investment. One such lens is asking yourself, how might this investment impact my company worth?

The math to do this is simple. Let’s say you are thinking about hiring a new Marketing Director and the all in cost could be $225,000 per year. So if you’re EBITDA is running annually at the rate of $5,000,000, then when you hire this person that EBITDA drops to 5,000,000 - $250,000 or $4,750,000.

Now ask yourself, what do I estimate the exit multiple might be that an acquirer could apply to my business if I were selling it today. Let’s say that number is a 7x exit multiple. The investment decision I’m considering isn’t going to cost my business $250,000, it’s going to cost me $250,000 x 7 or $1,750,000 of company woth.

Looking through this lens, you next ask yourself – will this Marketing Director create new company worth (i.e.: by directly or indirectly accelerating our sales or margin growth) equal to or greater than $1,750,000? If the answer is a resounding yes, then just applying this investment decision lens would support the decision. If the answer is no or my confidence isn’t high, then this lens should give you pause.

You can apply this thinking to any investment, not just people. Some investments are minor in magnitude and don’t need this lens applied. But you want a sixth sense for which investments you should be applying this lens.

Investing in your business can be a great way to build your company worth. Start thinking about the investments in this way. Yes, there are multiple lenses to look through when making an investment decision. But this lens is an important one to add to your decision mix.

Knowing will help you focus your investments to build company worth

As you are thinking about building your company to be sold one day to deliver you a euphoric exit event, a gift to give yourself today is knowing what your company’s primary strategic growth need is for at least the near term. This may change over time, but you want to be thinking strategically on a regular basis about where to focus your growth energies.

There are only 4 ways to grow a company and the MPPH model helps you think about it:

• Market: Is your market, your sandbox, that your company plays in today large enough to meet your growth requirements? If yes, then Market isn’t a growth barrier for you. If no, then it’s an opportunity to think about submarkets or adjacent markets to enable growth.
• Product: Is your product or service portfolio broad and deep enough to meet your customer/client needs? For some businesses, their growth is limited by the limits of their offering so they need to expand it and bring more solutions to their existing customers.
• Presence: Does your company brand and market coverage give you enough presence, or access to your target customers and clients? Do users of your product or service know your company even exists? If your target customers and clients already know to call you then Presence is already strong for you. But if there are large parts of the market where there are buyers for your offering and they don’t know you exist, then Presence might be your strategic growth opportunity.
• Hit: What is your hit (or win) rate and is it above, below or at your industry norms? Leadership teams often focus on finding new leads but they are layering new leads on to a bad sales process…meaning, if they fixed their follow up and sales process to improve their hit rate, they might see meaningful growth from leads they are already getting.

Don’t play whack-a-mole with your company’s growth strategy. Know which aspects of the MPPH model need your focus. Knowing this and focusing could accelerate your building of company worth.

What to expect when you’re asked to consider buying a business

We have posted on this site the potential strategic value to first acquire a business to bolt onto yours to build your capability and scale ahead of you selling your business one day. This strategy could accelerate the building of your company worth.

You probably periodically receive emails or calls from buy side representatives looking to see if you’d be interested in acquiring the company they are representing. Should you respond because you are curious about the opportunity? Here are things to have in mind as you think about whether you want to kick the tires of these reachouts:

• We advise clients, only look if you’re truly intending to consider acquiring. It’s disingenuous to sign the deal NDA because you want to receive what could be competitive intelligence yet you don’t have intention of acquiring. Doing this over time could give you a bad reputation in the market and potentially harm your future transaction.
• Be prepared to sign an NDA ahead of receiving any details about the potential deal. All you will receive is a vague amount of information about the selling company and don’t ask to receive more ahead of signing the NDA. Regarding the NDA, look to ensure it is not a generic one but one that is crafted specific to a possible transaction. The reason is you may have been contacted as a potential acquirer because you compete with the selling company. If you are competitors, then signing a standard NDA could be problematic for the future if you don’t acquire it.
• Once you express initial interest and sign the NDA, be prepared that a seasoned seller or their representative will have a screening process to determine whether you are serious about considering a transaction. Once you’ve signed the NDA, be prepared for screening questions ahead of receiving the confidential details about the potential transaction:
  • Are you a potential strategic or financial acquirer?
  • Have you done prior acquisitions and if so, how many?
  • What will be your source of funds – will you have to finance some or all aspects of the deal?
  • Would your deal likely be all cash or will you require an earnout or seller reinvestment?
  • What would your estimated time frame be for conducting your due diligence should an initial offer be accepted?
  • Do you already have M&A legal counsel ready to represent you in a potential transaction?

Play this movie forward related to receiving these sell side queries. Be prepared to show that you are serious about considering the opportunity, truly capable of conducting a professional transaction and not just a tire kicker that could waste the sellers’ time. Build your company reputation, don’t harm it by how you manage these types of queries from sellers. Being able to show you are prepared to conduct a potential acquisition could position you well in the eyes of the seller and give you an advantage versus other buyers also expressing interest.

Managing squirrels is a muscle every leader needs to have

Building the worth of your company requires you and your team to have many strong muscles in place. Having the right muscles will help you greatly when selling your company one day to achieve your euphoric exit event.

The muscles needed include strategic thinking, planning and execution. In addition, a muscle is needed for managing the steady stream of ideas, or squirrels, that can come across your plate. We regularly hear from executives that a challenge they face with their team is managing the squirrels and it’s often a source of great frustration. The steady flow of squirrels can be a good thing because it means your team is regularly identifying opportunities for growth or improvement. But if not managed properly, they will hurt your efforts to build company worth because of the constantly changing priorities of what your team is working on.

Here are the leading factors that can cause a leadership team to be frustrated by squirrels:

• The team isn’t aligned around what good looks like longer term. Each person defines it differently which leads to a lack of alignment on short and near term decisions and priorities. One person sees a squirrel as a great idea because they view long term success their way but another person doesn’t agree with the squirrel because the future targets look different to them.
• The strategy and near term tactics for the business aren’t set well enough to be used as a gauge. Knowing your strategies and tactics will give you the needed gauge by which you can measure the value of a potential squirrel. Having clarity and alignment around your team’s strategic and tactical focus will provide the needed gauge to decide which squirrels could be of value.
• The team isn’t aligned around a set of criteria by which a squirrel can be evaluated. Beyond having clarity around strategy and tactics, a set of prioritization criteria can be helpful to determine which squirrels warrant attention. As an example, if we project the squirrel can generate $500K of revenue or greater in less than 12 months, can achieve our average gross margin or better, will require less than 50 man hours to address then we may pursue it….but if it doesn’t meet these criteria, the squirrel doesn’t receive any resources.

Squirrels aren’t a bad thing when they are managed well. Leaders and leadership teams that don’t have a means by which to determine the squirrels that should get attention and those that shouldn’t are hurting the long term worth of the business. Determine whether your team is good at managing the squirrels and if not, think about the steps above to begin building this muscle today.

Know which will build company worth

Your job as an owner/CEO is to build the worth of your company so you can achieve a euphoric exit event one day. Over the years, as you’re trying to build the worth, your company is going to experience good and bad times. Too often owners don’t think about the different types of leadership needed for each.

War time leaders know how to handle downturns, challenging business conditions and even turnaround situations. Peace time leaders don’t. Their style is perfect for when business conditions are stable but they are slower to adapt and drive the needed changes during difficult times.

During challenging times, owners and CEOs that are tuned to this dynamic will know when to bring in outside resources to complement their current leadership. Meaning, if their team is peace time talented but a downturn or big problem arises, they complement them with an interim external resource that is war time experienced. This way you can address the challenge more swiftly while protecting, even building, company worth and you can help develop your team for the future.

But if your leadership is war time seasoned, leading during peace time isn’t playing to their strong suit nor is it of much interest to them. So generally, war time leaders aren’t a good fit for stable businesses operating in mature industries. But peace time leaders can potentially operate during difficult times but should be complemented with war time seasoned resources.

As you think about your leadership team, keep this dynamic in mind. Which leadership does your company have and is it capable of always growing your company worth?

Don't let your future company sale be negatively impacted

There is an adage in the M&A world and that is if you’re an acquirer, you don’t want to be the first one to make an offer to a seller that has never sold a company before.

The reason is simple. The first offer often offends the seller because first time sellers often have inflated values in their mind regarding what their company is worth. So the acquirer who makes the first offer is often viewed as the bad guy and gets turned away. And secondly, the acquirer’s due diligence can shock first time sellers who aren’t familiar with what is involved in the deal process and sellers have been known to back out of a deal due to the stress and time consumption.

When the day comes you want to sell your company, you want to attract as many suitors as possible to run a competitive bid process. To do this, you’ll want to convey to potential suitors that you are an educated seller. Here are some preparation steps for you to take ahead of time so you can make these types of statements to the potential suitors:

• We engaged with a deal professional a while ago (an investment banker or broker and/or an exit planning professional) who is providing us guidance about the sale process so we have become very familiar with how it works and what to expect.
• We have done work to identify the valuation range of our company so we have the ability to compare any offers we receive to that range.
• We conducted a due diligence dress rehearsal over the past year so we know we are ready to support an acquirer’s process.
• We have engaged with seasoned M&A legal counsel and not planning to use our regular business lawyer to represent us in this transaction.
• I/we are committed to selling this company for the right offer and to the right partner, we won’t get cold feet at the last minute. We’re prepared both personally and professionally given the planning that we’ve been doing.

Improve your likelihood of having a euphoric exit event one day by being able to convey to potential acquirers that you are prepared to support a smooth deal process. Doing so could give them confidence to pursue your company without fear that working with you as a first time seller won’t cause them to incur an unnecessarily lengthy and costly deal process.

Answering these questions could provide valuable strategic insights

Building your business so that one day you can sell it and deliver yourself a euphoric exit event begins with asking and answering insightful questions today. The questions you should be asking as Q1 has just completed will have you discussing the right topics with your team and gaining valuable insights to help you build company worth.

Here a just a few typical questions that an owner/CEO should be getting answers to at the end of any quarter:

• What products/services in our portfolio helped pull up our financial results and which ones pulled them down? This comparison should be done to the budget and to prior periods such as prior quarter or prior year. Don’t just look at your consolidated numbers, look at performance by products/services in your portfolio.
• How did each of your served market sectors perform, which ones pulled up your financial performance and which ones may have pulled it down?
• Did your revenue growth accelerate, flatten, decelerate or decline versus prior periods and are you clear on the reasons?
• What was your productivity in the quarter – did your team deliver more outputs with fewer inputs or did the required inputs grow at a faster rate than the outputs?
• Did you build company worth in the quarter by making progress in the non-financial aspects of your business that will one day contribute to the valuation an acquirer places on your business?
• What is your revenue and margin forecast (by product/service) for the balance of the year and does it show that you need to rethink any of your plans/actions/investments that you built into your budget for the next 9 months of the year?
• Were there any new situational awareness learnings that indicate to you that your business could face a future disruption (i.e.: from a competitor or an advancing technology) or that could provide you an opportunity to be a disrupter in your industry?

These are just a few typical questions that an owner/CEO should be asking at the end of a quarter. Meet with the key leaders on your team and use these to facilitate healthy, strategic dialog. Doing so today can have you identifying steps you could be taking to build the future worth of your business.

A key part of exit planning is ensuring your company can withstand due diligence

In addition to helping clients prepare to sell their company to achieve a euphoric exit event, we also help clients do acquisitions. Acquiring before selling can be a very good strategy for accelerating the building of your company worth.

What we see far too often in helping clients do acquisitions is sellers who are ill-prepared to support a normal due diligence process.  We then see the owners of the selling company putting themselves through unnecessary stress. When this occurs, the due diligence process drags on longer than it should causing both acquirer and seller to become fatigued with the process. This can also cause unnecessary cost for both parties, distraction of resources, animosity and ultimately cause one of the parties to withdraw from the process.

If selling your business one day to a third party is in your cards, ensure you will be ready and avoid these common issues we see caused by sellers:

• Corporate records are not up to date.
• Financial data is not clean for at least the past 3 years.
• Inconsistencies or conflicts in the data – as an example a financial report conflicting with an operational report.
• Lack of proper documentation of key aspects of the business – as an example no documentation of procedures for accounting methodologies such as revenue recognition or inventory management.
• Inability to show documentation of ownership of intellectual property such as internet domains or trademarks or tradenames.
• Customer, supplier or lease agreements that don’t allow for easy transfer to the acquirer.
• Environmental issues are identified during due diligence that are a surprise to the seller
• A seller who engages their general business lawyer versus engaging an experienced and focused M&A attorney to represent them.
• Key employees not supportive of the pending transaction.

Always conduct a due diligence dress rehearsal at least 2 years prior to wanting to sell your company. Avoid being “one of those sellers” that brings unnecessary cost, stress and fatigue to their exit event. Don’t reinvent the wheel, engage with a professional that will help you effectively prepare to achieve your future euphoric exit event.

There are multiple dimensions to defining your future euphoric exit event

Ask yourself this question – am I being kind to my future self by identifying today what will make me personally euphoric one day when I sell my company? And as part of this, have I identified what I want my personal legacy to be?

Too often, owners of privately held companies don’t define what will make them euphoric both professionally and personally when they sell their business. They focus their future planning activities on their business, not on themselves and their families.  As part of helping our clients build a plan to achieve their euphoric exit event one day, we facilitate their thinking and planning around what they want their personal legacy to be. Will their personal legacy be connected to their business or will their business be the means that enables them to build a legacy separate from the company?

This isn’t something you think about when in the middle of selling your company. It’s a question you want to answer for yourself years prior to the exit. For some owners, their legacy is the business they’ve built and they take steps to ensure this legacy lives on and as the business lives on. For others, their legacy isn’t their company, it’s something else but their business helps fuel it. Like setting up a philanthropic organization or a scholarship fund where they want their legacy to thrive.

As you work on your future exit planning, don’t just focus on your business. Achieving a future euphoric exit event goes beyond the money and deal structure you get for your business. Use time as a friend to begin setting your exit plan today that addresses both the professional and personal sides of your future  euphoric equation.

Selling your company one day will be enhanced by having a solid brand name

Ask yourself this question – are we allocating our marketing investment dollars effectively?

Here is a general rule of thumb as it pertains to a marketing investment - 60-20-20.

What this means is 60% of your marketing dollars should go toward attracting new customers to your company. 20% of the dollars should go towards retaining existing customers and 20% should go toward the general building of your company brand. And with each of these, your goal should be marketing your brand in a way that makes your company memorable to your target and existing customers.

As you think about this for your business, do you know what the percentage mix is?

No two companies are alike so the mix can be different but generally it should be 60-20-20. The first step is knowing what your mix is. Building a brand that is well positioned in your served markets and a brand that is well respected doesn’t come by chance. Evaluate your marketing spend by tracking things like new leads coming in daily or weekly from targeted audiences, conversion rates of those leads, customer acquisition costs, retention of existing customers, etc. etc. Assess whether the leads coming in are quality both in volume and in terms of whether they are from your target audience…if not, this could be a red flag that your marketing investment isn’t working for you.

An acquirer one day will assess your brand equity in the market. Ensuring today that your marketing investment is building a strong brand will be a gift to your future self. It will be a gift because an acquirer will reward you in their valuation when they see a strong performing brand and one that has exciting growth runway left going forward. Don’t leave your marketing investment to chance or to the latest shiny marketing opportunity – be strategic, be intentional and build the worth of your business.

Know the potential impact long before you attempt to sell

When you look to sell your company one day, an acquirer will look to place an exit multiple on your profitability to determine the valuation they should pay you. Every industry plays within a range of this exit multiple and the ranges change over time. We always say to business owners, you can’t change the range of exit multiple an industry is serving up, but you very much have control over where in the range an acquirer will place you.

For companies that have a single type business and business model, an acquirer will generally place a single exit multiple on the profitability of the business (i.e.: your adjusted 12 month EBITDA). But where it gets tricky is if your company is comprised of multiple types of businesses. In these instances, the acquirer will place one exit multiple on one of your businesses and another on the other, leaving you with what’s called a blended exit multiple.

Quick example – an owner had a specialty polymer engineering company and a metal die casting business. Although this owner saw them as his single company, an acquirer viewed them as two different businesses. The polymer business at sale commanded a 10x exit multiple on the profitability of that business, but on the metal die casting business they applied only a 4x. When the acquirer’s offer came in, the blended multiple (based on the weighting of the profitability of each business) came in at a 6.5x. This shocked the seller as he was expecting closer to the 10x for everything.

So ask yourself, when I look to sell one day, will an acquirer view my company as a single business or will they see multiple businesses and therefore apply a blended multiple? This isn’t something you want to learn when you’re in the heat of the sale. You’ll want to know this well ahead of time as you’ll have more options for addressing it then you will if you wait until it’s time to exit. Call us (949.874.0787) and we can help you determine if your company might experience this issue in the future.

Here is a template for ensuring you and your team are aligned

Ask yourself this question – if I have each member of my leadership team individually answer the following question, will each of their answers be the same – What are the top 3 to 5 decision criteria or decision drivers that our customer uses to decide whether they will buy from us?

If the answers come back aligned, there is a good chance that your sales and marketing messaging is effective. But if the answer is you’re unsure or no, the answers will not come back the same, then now is the time to address this.

Your customers, in the various market segments your company serves, have a set of criteria they formally or informally think through as to what they need to see and hear from your company before they will feel confident in purchasing your products or services. If today you went out to buy a new car or purchase a laptop, you know for yourself what the top 3 to 5 criteria you’d look for and will only purchase once you find a supplier that meets them. It’s the same with your customers.

Attached is a great template (Aligning My Team Around Customer Decision Drivers) to facilitate a dialog with your team to ensure you’re all aligned. Having this alignment will not only help you today in focusing your sales and marketing deployment, messaing and investment, but it will also help you one day in selling your company as it will be important for an acquirer to see you are very much on top of this.

Here is a template to help you protect and build your company worth

When selling your company, here is a future scenario to avoid. During due diligence, the potential acquirer conveys after reviewing all your open customer and supplier contracts that there is language your team accepted that is causing concern for them. Things like:

• They actually can’t entertain acquiring your company because you have an agreement with a customer that gives them the right of first refusal to acquire your company.
• A customer and/or supplier has the right to approve or disapprove who you might sell your company to – and/or they have the right to advance notice of your plans of selling your company even before the transaction is finalized.
• The contract with a key customer becomes null and void the minute you sell your business.
• A customer and/or supplier has the right to use your intellectual property in their product/service.
• Your company is exposed to future claims of unlimited cost due to the wording in the indemnification language.
• The contract has language limiting your ability to change pricing despite year over year changes in material or labor costs.

Ask yourself this question – who at my company is the owner of ensuring that ALL contract language we sign up for has been reviewed knowing the future impact the terms could have on a future exit? Here is a great template (Contract Terms and Company Worth) for using each time you sign a contract, look for these clauses and ensure you pay extra special attention to how you negotiate them. Doing so could help avoid a future headache and keep your company worth from being impacted negatively.

Selling your company one day will include an acquirer’s probe of a key metric, be ready

Ask yourself this question – is my Gross Profit being accurately tracked and reported?

Too often we find the answer is no.

First let’s explain the difference between Gross Profit and Gross Margin. Gross Profit is a monetary amount, i.e.: the dollars left after subtracting your cost of goods/services sold from your Net Revenue but Gross Margin is the percentage ratio (your cost of goods/services sold divided by your Net Revenue). So the former is the absolute dollar amount, the latter is the amount represented in a percentage.

In terms of reporting this number accurately, there is the GAAP definition and there are also nuances related to your particular industry. You want to understand how your reporting relates to both of these.

For example, where do you capture and allocate factory/office overheads like rent, insurance benefits for your direct labor, R&D costs or direct labor vacation costs and the list could go on. You might have the way that you like to look at your gross profit, but you have to ask yourself, is this reporting also how a future acquirer would expect to see it for my industry? And ask yourself, do we only report gross profit at the company consolidated P&L level or are we able to report it for each of our products/services and by key market segments and even by individual customers? A future acquirer will probe your gross profit beyond just the consolidated level so you want to be ready for this but you shouldn't just do this level of reporting for a future acquirer, you should be doing it so your team gets a more strategic view of your company today.

Talk with your Controller/CFO and your CPA to discuss your reporting in this critical area. You want to avoid trying to sell your company one day only to find out that the potential acquirer wants to recast your financial statements because they don’t agree with how you’ve been reporting gross profit in your industry. Use time as a friend to get this right in your historical tracking and avoid a common misstep in one day achieving your future euphoric exit.