Have at least minimum disciplines in place to support a great exit valuation
The performance of your business at any point is time is the culmination of decisions you’ve made and operating disciplines you have in place at your company. And it’s the combination of these that one day might excite an acquirer to pay you a premium for your company. Let’s therefore think about some of the minimum disciplines you should have as they are most likely the ones an acquirer will hope that you have built in to the operating muscle of your company.
It’s common for larger businesses to acquirer smaller ones. One of the concerns the larger company often has is that basic operating disciplines may be lacking and have to be introduced to the smaller acquired company. They might see having to introduce these more common desired disciplines as risky, time consuming or costly to get in place and therefore could impact the valuation they place on your company. If your future acquirer will be a larger company, prepare today to show them at time of exit that they don’t have to worry about, or at least minimally worry about, assimilating your company into their own. Here are the more common disciplines the larger acquirer might hope you have introduced at least to a minimally acceptable level:
- Have a documented strategic plan, or at a minimum, documentation of where you are taking your business and what initiatives you're working on to get you there.
- Have a monthly (minimum quarterly) discipline of effectively reviewing your progress against what’s in your strategic plan as well as the discipline of leveraging your financials to fully understand your profit and loss, balance sheet activity and certainly cash flow management.
- Have good bookkeeping, general record keeping and overall solid financial management, accuracy is key.
- Have good documentation of your operating procedures – accurate bills of materials if you’re producing a widget and good procedures documentation if you’re a service provider.
- Have a good discipline related to the compensation program for your team. A comp & benefits program that is market competitive – not too far below market levels and not too far over either.
Each industry might have others to add to these, but these are the primary ones to ensure you have in place. Think to yourself, if you were acquiring another company what basic operating disciplines you’d hope the seller has in place to give you the confidence to pay them for their company. Getting these basic disciplines in place before you attempt an exit, could be the difference between receiving a poor or just ok valuation offer from an acquirer versus receiving an offer that makes you euphoric.
