Reflections

Selecting your M&A attorney is a critical exit preparation step

Most business attorneys can handle the legal document preparation needed to transact the sale of your business to a third party. But only very seasoned ones will keep you from getting sued post-transaction.

Selecting your legal partner for your transaction is not something you do once you’re already entertaining early dialog with potential acquirer’s. A year prior to even thinking about selling your business, you’ll want to interview seasoned mergers & acquisitions (M&A) attorneys to see which is the right one to join your team. This person/firm will represent you in all legal matters related to the transaction and will ensure that legal documents are negotiated to protect in getting the best deal possible and protect you from lawsuits that can commonly arise after you’ve sold your company.

And avoid a common mistake that many owners of smaller privately owned companies make. They turn to their long-time trusted family or business attorney. We aren’t saying never do this, but we are saying think long and hard about how seasoned they are in the specialty field of negotiating legal documents for a company sale. Your acquirer will very likely have a very experienced M&A attorney representing them, so you don’t want to have your generalist up against their specialist.

Don’t leave selecting your M&A legal partner to the last minute. Contact us and we can provide you with the questions to interview lawyers and we can even recommend some that we’ve worked with on smaller deals and very larger ones. Don’t prepare for a euphoric exit event only to find you selected the wrong legal partner to get you over the finish line and protect you years after the transaction was completed.

Add this topic to your strategic planning discussions to build company worth

When thinking about your future euphoric exit event, one of the many areas an acquirer will evaluate your company for during their due diligence is what impact an evolving technology could have on your business. If they believe your company is ill prepared for an evolving new technology and could be disrupted by it, the valuation they place on your business will be negatively impacted. It will be impacted because they will see this as risk that they might have to address in buying your business. But if they see you are already leveraging a new technology to be the disrupter or have the potential to do so, your valuation could increase greatly.

Sit with your team and discuss these questions:

• What are the evolving technologies coming at our industry that could change products, services, customer experience or a general business model that we or a competitor has?
• Could an existing or new competitor leverage an evolving technology to change their product, service or business model and that change could give them an advantage over us, thereby disrupting us?
• Could an evolving technology be used by us to bring disruption to our market so we get a strong competitive advantage?
• Do we see any competitors beginning to leverage new technologies and if yes, what could that mean to us as we compete against them?
• Can we talk with select customers and even target suppliers to get their view on what evolving technologies they see coming into our industry?

Don’t let a new technology and how it’s being used in your industry be the reason a future acquirer reduces what they want to pay for your business. Add this topic to your strategic planning…could we be disrupted and could we play the role of a disrupter and in so doing, build the longer-term net worth of our company.

Another planning muscle a future acquirer would like to see you have

When you look one day to sell your company, the acquirer will do their due diligence and among the many things they will be looking for is what types of basic business planning disciplines your team possesses. These basic disciplines include developing a strategic plan for your company as well as building an effective accompanying budget. Lacking these basic disciplines won’t turn them away from wanting to acquire your business but it could make them look even deeper during their due diligence to what basic disciplines they think you’re company is lacking and they then will have to build.

Specific to building an effective annual operating budget, here are some basic considerations to keep in mind:

• Don’t do your budgeting and strategic plan updating in parallel. Budgeting places constraints on your strategic thinking. Do your strategic thinking and planning and then do a proforma financial projection – if the proforma pencils out well then you move it to a budget. If not, then you go back to your thinking and planning to develop a plan to help you achieve your desired financial goals.
• In building a new year budget, evaluate what you got right and wrong about the assumptions that you built into the past year’s budget. You want to learn what you got right and repeat it and learn what you got wrong and see what you can do to not repeat the same mistake in building the new year budget.
• After assessing what you got right and wrong about your prior year budget, you then work on setting your assumptions for the new year. The senior leadership team should meet and discuss the assumptions that will then be used to build the budget. Here are assumptions to discuss and document as you build them into your budget:
  • What is the revenue target we’re setting for the new year – see the November 9^th blog posting regarding building your revenue walk
  • Raw Materials expense – are you expecting an increase, decrease or will it be flat
  • Direct Labor expense – increase, decrease or flat to the current year
  • Insurance expense – assumptions related to business insurance, employee health insurance and workers compensation insurance
  • Utilities – if your business is a large power/water/gas consumer, what increase/decrease assumptions are you making for the new year
  • General Labor – what wage increase assumption will you implement in the new year
  • Headcount – what increase or decrease will occur in your general workforce – are you planning to add new roles to the company and associated compensation and benefits expense or will it be the same as current year or will it be less
  • Travel & Entertainment – this can be a large expense in bigger organizations with a large sales and marketing team – what expense assumption are you planning
• Each month in the new year, compare your actual financial results to your new budget and to prior year actual. Discuss with your team variances and reasons behind them so you can continue to learn and apply the learnings to your future planning and budgeting.

Benefit today from having a stronger financial budgeting muscle at your company and be rewarded at time of your future company sale by building acquirer confidence. Talk to your CPA and your financial team to brainstorm improvements to be made in your budgeting heading into the new year.

Knowing which you are is important for a future successful company sale

We see three types of company owners – all are smart, all are driven to succeed but not all 3 will command a premium valuation for their business when the day comes they hope to sell to a third party.

Ask yourself, which of these 3 types of owner/CEO describes you:

• Owner/CEO that thinks tactically, isn’t asking the right strategic questions about their industry and business.
• Owner/CEO that is a strategic thinker, identifying questions they should answer about their business but don’t – they know they are kicking the can down the road on getting answers to strategic questions and executing on potentially tough decisions.
• Owner/CEO that thinks strategically, asks the right strategic questions about their industry and company and searches for the answers and makes the tough execution decisions.

We see a big difference at time of company sale in the premium valuation that owner #3 above commands for their business versus the other two. Conduct an honest self-assessment about which of these types of leaders you are. It’s not just important for you but it’s important for your family, investors (if you have any) and even your employees because you want them to have a good workplace to continue when the day comes you exit. Give us a call as we have templates you can use to help you think more about this and help to move you to being the strong strategic thinker and strong leader of your team for solid implementation.

When you sell your business one day, show the acquirer that you've built an important business planning muscle

Too often company owners and CEO’s plan their upcoming new year revenue only at the level of setting an overarching percentage of growth or a specific dollar target. Unfortunately, this target is often void of any real logic underpinning it other than where last year finished or gut feeling.

Build the muscle at your company of developing a sales target that is based on some logic. Here are the questions to discuss with your team that will have you “walking” your revenue from where it will end this year and what it will walk to for the new year:

• What do we think our served market will do next year in terms of growth – will our served market (and each sub-sector) grow, shrink or be flat and what will this mean to our growth?
• What changes are we planning to make with our prices for the new year – when will we implement a price change and what yield might this provide next year and what impact will this have on revenue?
• Are we expecting any changes in our customer base for the new year – any customers planning to reduce their purchases from us? Or customers that have been acquired or merged with another company and what will that result mean for our revenue in the new year?
• What do we expect our existing customers to purchase from us in the new year? Do we expect any mix changes to what they purchase from us?
• What are we factoring in to our revenue number for the new year specific to adding new customers?
• Are there any new products or services that we are planning to add to our portfolio and what revenue do we expect from this? Will adding a new product or service cannibalize anything we already sell? Might there be any products or services we are planning to cancel from our portfolio and what revenue (and margin) impact will that have?
• What are we planning for our sales team for next year – will we get incremental revenue as a result of adding new sales resources or will we lose any sales resources and what revenue impact might that have?

As you think about each of these questions and the revenue impact, you’ll then have the “walk” of your logic in terms of where one year will finish and where the next year is targeted to end. It will also help you think through the associated gross margin impact from each revenue line item which will go a long way in helping you plan your profit target for the new year as well.

With this degree of detailed thinking, you’ll be better able to set bonus programs for employees and sales targets for your sales team. Overall, this is a planning muscle you’ll want to build over time so when the day comes you want to sell to a third party, they will be impressed that you have this planning ability and it may cause them to have greater confidence in your sales projections which will be an important part of their consideration for placing a value on your business.

EVERYTHING

Many times, when a seller looks to sell their company to a third party, they naturally think about negotiating the deal. But too often the definition of negotiating begins and ends with the purchase price, or valuation the acquirer places on your company.

But in reality the sale price or valuation is just the starting point for what you can negotiate to move you toward your euphoric outcome. Here are other negotiable items that can make a meaningful difference to what you’re receiving for your business.

• Structure of the transaction. Negotiate for a Stock transaction as these are often more favorable to the seller due to tax benefits versus an Asset transaction.
• Working capital adjustment – these are a common negotiated item during a transaction and can be meaningful to the net proceeds the seller receives.
• Holdbacks – this is a common negotiated item and will impact the timing and the potential dollar amount the seller receives.
• Percentage of cash at close versus payments over time – the timing of receiving payment for the business may impact the seller tax payments and the time value of money.
• Owner salary amount to stay on board or to work through a transition period. Include negotiating a bonus during the same period.
• Continuation of health benefits for the seller and family.
• Continuation of desired perks that the seller has enjoyed historically.
• Continued use or access to the company products and services if desired by the seller.

This gives you a flavor of deal points that are open for negotiation in most transactions. Thinking beyond just the overall dollar valuation amount can have you increasing the total reward you’re receiving for all your years of hard work.

Preparing for your future company sale begins with having the right plan

What can businesses learn from the military as it relates to strategic planning? It’s that strategic planning is the military mantra of having situational awareness and operational effectiveness.

Ask yourself these questions:

• Do we have great situational awareness of what is going on inside our four walls?
• Do we have great situational awareness of what is going on outside our four walls?
• Based on this situational awareness, do we have a good plan for operating effectively?

Executives often don’t tackle strategic planning because they don’t know how to…so they put it off. Or they try to tackle it but over-complicate it. Here is an effective broad approach to tackling your company strategic plan:

• 1. Situational Awareness – Assess inside the four walls of your company
  • What is our historical financial performance
  • Where are we strong in the market, where do we have challenges
  • What value does our customer derive in working with us
  • How do we serve our customers uniquely versus the competition
  • Where is our team/organization strong and where do we have challenges
• 2. Situational Awareness – Assess outside the four walls of your company
  • Is our market growing, flat or shrinking
  • What will future economic projections mean for our product/service
  • What is our customers decision criteria in deciding whether to issue us a PO
  • What technologies are impacting our industry and how can we leverage them
  • How might our customer buying behavior be changing in the future
  • What are un/under-served aspects of our market by ourselves and our competition
  • Where could a competitor disrupt us? Where could we disrupt our competition
• 3. Operational Effectiveness – Where do we want to go with our business
  • Where do we want to go long term with our business – what does good look like in the future
  • What does our internal Situational Awareness tell us we should improve upon
  • What does our external Situational Awareness tell us we should improve on
  • What new products or services could we launch
  • What new markets/subsectors should we expand to
  • What changing needs do our customers have, how could we meet these
  • How could we become more productive/efficient in how we fulfill on our product/service

Strategic thinking and planning are the ultimate muscle you want to build at your company. Doing so will help you build something special, something that a future acquirer will pay you a premium for one day. Use time as a friend and begin building this muscle today.

Don’t make this mistake in preparing your business for a future successful sale

Many surveys have been done of retired business executives. A frequent question in these surveys is, “if there is one thing you could turn back time and do differently, what would it be?”

The answer is very often the same. “I would have made certain personnel changes faster.”

When I ran businesses I was trained to look at my employees, especially my key managers, and ask the following:

• Who is holding us back in building the net worth of our company?
• Who is helping us build the net worth of our company?
• Who is supporting those that are building the net worth of our company?

The first group should not be tolerated and a change of some sort MUST be made now. The second group I need to identify so I can reward and retain them. The third group is where a lot of our tactical work gets done so certainly want to work on retaining them. But what I simply cannot let continue, is the first group.

Don’t have this same regret that so many executives before you have had. Think about your employees, especially your key managers in these three categories. Do your future self a favor by building a strong team today and that is a team that is helping you build meaningful company worth, don’t tolerate anyone holding you back.

Think about strategic planning in a new way to build company worth

In previous posts we’ve covered how companies can grow their net worth by building a strong strategic thinking and execution muscle. We refer to doing so as giving a gift to your future self because when you go to sell your business, an acquirer will see the results of what your strategy has built and could make you euphoric with the premium value, or worth, that they place on your business.

But far too many company owners and CEO’s don’t have teams that are strong at strategy, in fact they are mostly tactical. Very good at their product or service and good at supporting their customer but in the long run, this alone doesn’t build an asset that a third party will pay handsomely for. Equally unfortunate, many owners and CEO’s overcomplicate what strategic planning is so they never build an effective muscle in this critical area. Today, we want to give you a more effective way of thinking about your strategic planning.

Strategic planning is filling your gap. Here are the 3 steps:

• 1.) Ask yourself where is my company today?
  • Where are we strong in the market, where are we challenged?
• 2.) Ask yourself where do I want my company to be in the future – and how do I describe what will make me euphoric when you sell your business one day?
  • What outcome do you want your company to deliver for you personally and professionally one day?
• 3.) Ask yourself, in looking at my answer to question #1 and my answer to question #2, what’s causing the gap between the two – in other words, why isn’t your company already at your future desired state?
  • What are the primary gaps that are keeping your company from already being where you want it to take you?
  • Identify what steps, or initiatives, you could work on to eliminate the gaps – what are these steps and in what priority should you address them
  • In looking at the gap(s), do you believe your plan for your company could get you to your future desired state or is your plan not aggressive enough to close the gap(s). If your plan clearly isn’t going to get you where you want to be, what additional strategic steps could you take to close the gap.

We are intentionally over-simplifying strategic planning. But not by very much. Strategic planning is simply the art of knowing where you are, where you want to be and conducting an honest assessment of what’s causing the gap to keep you from getting there. Knowing the gap(s) and their magnitude will help you know today how audacious your plan does or doesn’t have to be.

Give us a call and we can help you take a fresh new look at the strategic planning at your company. Use time as a friend in preparing for your future euphoric exit event and leverage a new approach that could help you with breakthrough strategic thinking and accelerate building the net worth of your company.

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:Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of your business?Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of your business?

• Do you clearly know the top 5-7 things a future acquirer will look at your business to see if it possesses and these top things will drive their valuation of 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.