If you are thinking of retirement or considering selling your company in the next five years, one of your priorities should be to maximize and increase the business value of your company. This requires attention to the numbers, and ensuring that a potential buyer will view your firm as a well-run business with value above and beyond simple asset value.
One of the key things you should focus on is the processes and systems that drive your employees’ behavior and operational efficiency every day. A new buyer is going to want to see that your firm has grown beyond the small entrepreneurship that it grew up on, and is now functioning efficiently.
A great area to start is with your accounting and CRM systems which can add a lot of structure and reliability to your time collection, transaction processing, billing, and monthly reporting. A potential buyer will want to see consistency in the monthly processing as well as in the marketing and sales systems that support the business development and revenue generation side of the business.
Larry A. Davis, Partner at Aronson Capital Partners in Rockville, MD, and expert in mergers and acquisitions (M&A) in the professional services industry has the following advice for business owners considering preparing their company to be acquired:
Companies that invest in building their infrastructure are not only better positioned for growth, but they can enhance their value in a sale process. Having mature business process and systems allows companies to provide the financial reporting that is required to support their earning and growth forecasts. Whether it be the ability to report margin by project or line of business, or to produce a detailed sales pipeline to support growth projections, these investments certainly pay off in terms of enhancing shareholder value.
Clearly there is financial benefit to a business owner to invest in the improvement of business systems. But unfortunately many business owners wait until they are in the middle of a potential transaction before they realize just how poor their existing system are.
For a firm using QuickBooks, the difference in price that a business owner can sell at can be substantial, adding up to millions in lost future revenue. The due diligence process is where many deals fall apart, and not having reliable financial reporting down to the project level can be a huge disadvantage to a seller. Many firms do not engage in monthly reconciliation of their books and financial reports. This can make a buyer very apprehensive when considering your firm as a target.
A few things you can do to prepare your business for a future sale include:
- Upgrade your accounting and CRM systems well in advance
- Establish internal controls to prevent fraud and mistakes
- Have your accounting department reviewed by a CPA for tax compliance issues
- Ensure that all regulatory and labor laws are being followed
- Establish regular monthly reporting practices including reconciliation of the balance sheet
By paying attention to the detail in advance, you can prepare your firm for a smooth due diligence process and a higher potential value. You may also want to hire a M&A consultant that specializes in your industry. They can ensure that you are prepared for the process, and get the value that you deserve, and the terms and conditions that best suit your future plans.