Will your financial narrative excite an acquirer to buy your company
Ask yourself this question – in looking at my company financial performance, what story or narrative does it convey?
When the day arrives that you elect to try and sell your company to a third party, there will be 3 specific narratives the potential acquirer will be listening for. The first relates to the narrative around what your company is and why it’s special. The second relates to why you’ve decided to sell the business. And the third is the narrative that your financial performance will convey and does this narrative support or conflict with the other 2 narratives?
Specific to the narrative that your financials are conveying, here at a very high level is what a potential acquirer will be looking for when they have the opportunity to review your financial performance (of the last 3 to 5 years will be what they want to look at):
- What is the general historical trend of the financial performance of the company and certainly what is the most recent trend….growth, flat or decline?
- What is the general revenue and gross profit trend of each of the key products and services your company provides? A potential acquirer wants to see more than just the consolidated performance of your company, they will want to see it at a more granular product/service level.
- How are your company gross margins trending in relation to your sales? If your company revenue is growing, are gross margins remaining strong or has growth required you to give up margin or do your margins increase with efficiencies that can be gained from greater sales volume?
- How have your fixed, variable and Sales, General & Administrative costs trended in relation to your revenue? Are you able to increase sales at a faster rate than you have to add costs (i.e.: adding more labor or material costs) or are you experiencing efficiencies and economies so that your costs are not rising as rapidly as your revenue is?
- What is the trend related to the working capital requirements of the business? Is your company needing to tie up more working capital, same or less as it relates to your sales trend?
- Is your business experiencing positive operating profit leverage on each incremental dollar of sales? Meaning, for every dollar of incremental sales, is the incremental profit greater than the average profit performance of the general business or are incremental sales driving lower or greater incremental profit?
These are just some of the initial questions any potential acquirer will want to understand and their assessment of your financial performance will convey a story or narrative about your business. Obviously, this narrative is extremely important as it relates to exciting the acquirer to not just make an offer, but make you an attractive offer. Begin today looking at your financials with this future narrative in mind. Doing so will allow you to make decisions and improvements in your financials to better position you one day to deliver an exciting narrative to acquirers knowing that your financial results will back up your compelling overall narratives.
