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CEO Advisor® Newsletter
July 2013

Maximize the Value of Your Business

Maximizing the value of your business each step of the way is crucial to realizing its potential, gaining funding or having a successful exit.  There are key factors that enable you to maximize your business value, and you should focus on them on an on-going basis, as well as, gain the needed expertise to realize that value.

Funding your business or selling a business is likely to be the largest and most important financial deal any business owner will make.  Unless you have sold a business before, you will have no experience to draw on and won't know what to expect from a savvy buyer.
 
You need to avoid the pit falls you will encounter and ensure you maximize the value of your business well before and at the point of exit.  With decades of experience in mergers and acquisitions, our expertise and experience are tremendously valuable in maximizing the value of your business and completing a successful transaction.
 
Whether you are growing and in need of funding, or planning the sale of your business, there are 7 key factors that will greatly enhance the value of your business. Focusing on these factors will yield a huge return. 

 

  1. Growth rate at or above the growth rate of your industry
  2. Growth plan and forecast to achieve a sales level that attracts funding or a buyer, a large market with a strong sales team, distribution in place, and effective marketing
  3. Healthy Gross Profit Margins (GPM) - approximately 80% GPM for SaaS software companies, 70% for on-premise software companies, 50 - 60% for service companies, 40 - 50% GPM for manufacturing companies
  4. Strong and growing EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization)
  5. Solid management to perpetuate and grow the business now and post-sale
  6. Recurring revenue model and a "need to have" product or service
  7. High renewal rates for the recurring revenue aspect of your business model


You may have the best technology or product in the market, but a lack of the above 7 factors will greatly penalize your business value, and inhibit or preclude you from gaining funding or selling now or in the future.  If your business model does not include most or all of the above, seeking help from a business advisor will yield a tremendous return for you.

 

Term Sheet or LOI
There are many variables that can be presented in a Term Sheet for funding or Letter of Intent (LOI) from a buyer. Your goal is to attract a funding Term Sheet or LOI (an offer to buy your business) from a strong funding source or buyer that represents a good fit for your goals.  A non-binding Term Sheet or LOI typically will come early on in the process, after a couple of meetings and a review of your financials.
 
Since the Term Sheet or LOI is non-binding and typically the optimal scenario (the funding source or buyer may reduce the offer after due diligence), it is critical to have a 3rd party negotiator/business advisor to help you maintain a good relationship with your funding source or buyer. A seasoned business advisor can add tremendous value in negotiating the best offer and in getting the deal to completion.

 

Preparing for Funding or the Sale
It is extremely important to start planning for funding or a sale well in advance. This gives you time to solidify the business - fixing any issues that could dramatically affect its value and making it as attractive as possible to potential funding sources and buyers.
 

You also want to make sure your financials are in order and are ready for the due diligence process. More importantly, you want to operate your business to address the 7 key factors above, such as ensure you have recurring revenue with one, two or three year contracts to provide real value as a seller.
 
Most of all, you need to continue to manage your business effectively and avoid any dips in sales or profits before or during the funding or sale process.  Working with a business advisor to primarily focus on the preparation, funding or sale will enable you to stay focused on managing the business effectively.

 

Choosing Advisors When Seeking Funding or Selling Your Business
Experienced advisors such as a corporate transaction attorney, tax advisor and business consultants are essential for maximizing the value of your business for fund raising or an effective sale. The right business consultant can have a big impact on the preparedness and success of your fund raising or sale, and the amount you receive. It is extremely important to have an experienced, third-party negotiator to help you through the process and negotiate a deal to your satisfaction.
 
CEO Advisor, Inc. has the expertise and decades of experience in maximizing business value, fund raising and buying and selling companies.  Contact us today for a no cost initial consultation at (949) 629-2520 or email Mark Hartsell, MBA, CEO of CEO Advisor, Inc. at MHartsell@CEOAdvisor.com.

10 Ways Businesses Can Survive In Today's Economy

With a little discipline, good organization and planning, small and mid-sized businesses can safely survive an economic downturn. Here are a few suggestions on how to stay healthy financially:

Manage Your Cash Flow. Focus on the areas where your cash is being held up, such as inventory, equipment purchases, and accounts receivable. By doing so, you will be in a position to improve your current cash flow and predict a future shortfall in cash.

Consolidate or Restructure Your Debt. Bring together debt from loans, credit cards, or other lines of credit. Negotiate with creditors for a longer repayment period.
 
Look For Ways To Cut Costs. Look at direct costs, gross margins and overhead expenses carefully. You could, for example, cut down on old and obsolete inventory, and save on direct labor by better tracking and creating efficiencies.
 
Focus On Your Financials and Make Needed Adjustments. Review and use your financial statements on a regular basis to make prudent business decisions. Act on these decisions sooner than later. Forecast quarterly to know where you stand.
 
Tighten Your Credit Policy. Set stricter terms and conditions for extending credit. You could require a down payment at purchase, shorten the payment period, and only extend credit to select customers.
 
Use Assertive Debt Collection Techniques. Know when to make phone calls, send written requests for payment with statements, and know when it is time to temporarily stop providing services to a customer.
 
Carefully Plan for Expansion. It is better to stick to what you are already good at and just try to make it better. If you do expand, create a brief business plan and forecast based on research before expending your time and money on new products and services.
 
Negotiate With Your Suppliers. Negotiate what you are paying your suppliers. If you have a long term relationship with any of your suppliers then you may be able to get better credit terms.
Focus On Customer Satisfaction. Work on retaining the customer base that you have built up with follow-through, stellar customer service, and quality control. Then, upsell to increase business with these customers.
 
Know Your Financing Options. Know where to get money before you need it. Some financing options are based on future sales and have flexible repayments, such as invoice factoring or merchant/business cash advances. Focus on building relationships with current lenders, and establish a business line of credit for short-term cash needs.
 
Seek help to complement your expertise, especially where a lack of your time or a pressing need exists. It can be the difference between success and failure. Contact Mark Hartsell at (949) 629-2520 for a free consultation.
 
Client Testimonial  
  
"I want to start by telling you that I am very pleased with what we've accomplished over the last four months. It would probably be more accurate to say that I'm pleased with what YOU have accomplished.
 
Our CEO Advisor® was an excellent business consultant and did what he said he would; actually DOING things instead of just telling me what I needed to do. This is always my big concern when working with consultants. So many times they offer sage advice but fail to actually do anything more than talk. You have produced a volume of tangible work that is very useful to me and my management team as we work hard to build the company. Thanks for driving us forward."
 
 
CEO, Media Services Company

Words of Wisdom
 
"Far and away the best prize that life offers is the chance to work hard at work worth doing."
 
Theodore Roosevelt
President

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