SELLING YOUR BUSINESS:

Part 2: What is your business worth?

Presentation Series by Schwartz Heslin Group, INC. (SHG)

The SYB Series

Part 1: Introduction and First Steps Part 2: What is Your Company

Worth Part 3: Preparing for a Sale Part 4: Your Role in the Transaction

You have established your goal to sell your business. Now what?

What Buyers Look For First

Sustainable growth Strong and predictable cash flow Opportunities for growth Stable sales EBITDA NOT Asset Value

What Buyers Look For (2)

Strong revenue growth Proprietary Product/Service Long-term customer relationships Succinct customer database

A CRM is a highly recommended Low customer concentration Low vendor concentration

What Buyers Look For (3)

Barriers to entry The higher the barriers, the more value add

Established sales channels Established and efficient procedures

The business should be able to operate perfectly normally in your absence

Well-maintained capital equipment Up-to-date technology

Buyers Don’t Want to See…

Unreliable financial information This includes inaccurate and/or poorly

prepared records and financial statements Having audited financial statements is

recommended Business dependence on owner

An owner-dependent business may fall apart if sold

High vendor concentration High customer concentration

Buyers Don’t Want to See (2) Short-term ownership

Your long-term commitment in the past signals that the enterprise is a worthwhile investment

Lack of financing Tax rate uncertainty

Something to keep in mind as the United States moves toward increasing the capital gains tax

Acute vulnerability to economic cycles

Valuation Methods

Market Approach Prospective deal directly compared to similar

done deals Income Approach

Either DCF or capitalization of earnings method Asset Approach

Adjusts book value of assets and liabilities to reflect true economic value

Establishes baseline value excluding considerations of future profitability

Market Approach: Benchmarks Comparison of your company to peers

Key revenue drivers Primary expenses Key operating metrics Risks Etc.

Implications to Think About

Market Approach Why does your company deserve to be

valued at higher multiples compared to peers?

Income Approach Maximize value by maximizing cash flow,

income, and revenues in the years prior to sale

Asset Approach Maximize value with a strong, up-to-date

asset pool

Common Challenges to Valuation Unreported or underreported income Owners stubbornly focused on an

arbitrary specific price Unavailable or poorly compiled financial

statements When available, they are rarely audited

Try to Maximize Value

Report ALL revenue Focus on increasing sales Keep thorough and accurate financial

records Raise the public profile of your business Implement an aggressive marketing

strategy Streamline operations

Jettison unproductive assets, workers, and procedures

The Essential Best Practices

Be friendly and easy to work with Make it EASY for a potential buyer Provide requested information about your

business DO NOT be stubbornly focused on an

arbitrarily set price Streamline your operations Maximize sales and profitability

Next in the SYB Series:

Part 3: Preparing for a Sale