April 2026 Newsletter
Make Your Company More Valuable and Attractive to Buyers
Valuations remain relatively high, and M&A activity is fairly strong. And despite the public equities markets being as stronger as ever, valuations of smaller, privately-held companies have stabilized or declined depending on the size and strength of their metrics (YOY sales growth, Gross Margins, Net Profit Margins, monthly recurring Revenue, etc.), as well as, the strength of the management team.
A limiting factor is that your business may simply be too small to attract a buyer (under $5 million in Revenue unless a specific type of company or with certain intellectual property) which means you need to gain help in accelerating your growth.
Whether you decide to sell your company in today's market, or prefer to hold and grow your business further, there are certain key areas that you need to focus on to build value and make your business more attractive to current and future buyers. CEO Advisor, Inc. specializes in growing businesses to the next level, and building value in your business for a future sale.
A strategy to make your business more attractive to prospective acquirers may generate the greatest return in your lifetime. I tell our clients on a regular basis, you never know when the perfect buyer will knock on your door, or when circumstances in your life will accelerate your need to sell your company (illness, divorce, etc.).
To maximize your company value and sale price, we advise CEOs to:
1.) Take a proactive approach to preparation for a sale2.) Optimize your growth strategy and company KPIs/metrics, and3.) Conduct a competitive sale process at such time you decide to sell in the future. Below are key factors in your business to build value, make your company sellable and attractive to future buyers.
Growth Rate
The growth rate of your business is critical to the value of your business and the attractiveness to an acquirer. Small to mid-size businesses that grow 10% per year are not attractive to buyers given the many other options they have to acquire faster growing businesses. If your growth rate is slow or stagnant (and less than your industry growth rate), there are issues that you need to address in your business and your sales strategy if you expect to exit at some point in the future. This key factor - Growth Rate - applies to all types of businesses all the time, and a business advisory firm such as CEO Advisor, Inc. are experts in growing small to mid-size companies, as well as, preparing CEOs and their companies for an optimal exit.
Size Matters
Strategic buyers and Private Equity firms that are dedicating people and resources (their M&A or investment team) to acquiring a majority or 100% of a company tend to focus on larger companies. It takes just as much (actually more) time to acquire a small company than it does to acquire a mid-size or large company.
Acquirers are looking for Revenue and Profits that will move the needle of their business. They want strong management, large markets served for future growth, and Revenue that is substantial, forecastable, recurring and predictable. Kick into growth mode to increase Sales, Profits, the value of your business, and formulate an exit strategy to generate your golden opportunity to sell.
Recurring Revenue
If you are only as good as your last project, you are in the Services category valuation-wise and not optimizing your value. Acquirers see value in recurring, contracted Revenue. Not just loyal customers that buy semi-regularly (re-occurring Revenue), but a strategy and business model with long-term, contracted customers that is forecastable and predictable. You need to have a business model for high valuations and that has staying power to attract buyers in order to have them pay you handsomely for the customers you have secured and for your many years of hard work.
Gross Profit Margin
Your Gross Profit Margin (GPM), or Sales less Cost of Goods Sold divided by Sales, is the number one factor that points to the profitability of providing your products and services (before overhead/expenses). Acquirers are attracted to businesses with high GPM as this will typically result in high Net Profit, Net Profit Margin and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
Depending on your type of business (manufacturing vs. service vs. software have very different Gross Profit Margins), you need to have a GPM that is at or higher than other companies in your industry to optimize your value. If your Gross Margins are low, seek advice from a business advisor as you are, 1) Leaving a lot of Profits on the table, 2) Penalizing your business value substantially, and 3) Greatly limiting your ability to find a buyer upon selling your company.
Churn Rate
Churn Rate is a critical metric in the value of your recurring Revenue company. Both Revenue Churn and Customer Churn must be tracked and improved on continuously. Churn Rate for each of these metrics should be below 1% per month, and Renewal Rates should be targeted at 93% annually.
Management
Strong management is always a key factor in running and growing a sustainable business that is valuable and attractive to buyers. Interim management (business advisors, CPAs, attorneys, etc.) work well for smaller and mid-size companies until they reach a certain size where a full-time permanent management team can be hired. If you are the lone senior executive in your company or your management team is lacking seasoned expertise, you need to gain additional expertise and experience from a seasoned, hands-on business advisor to help you grow and build value in your business.
CEO Advisor, Inc. has over decades of experience and expertise in hands-on advising of small and mid-size businesses, including growth and strategy, building value, formulating an exit strategy and preparing a company for an optimal sale.
A limiting factor is that your business may simply be too small to attract a buyer (under $5 million in Revenue unless a specific type of company or with certain intellectual property) which means you need to gain help in accelerating your growth.
Whether you decide to sell your company in today's market, or prefer to hold and grow your business further, there are certain key areas that you need to focus on to build value and make your business more attractive to current and future buyers. CEO Advisor, Inc. specializes in growing businesses to the next level, and building value in your business for a future sale.
A strategy to make your business more attractive to prospective acquirers may generate the greatest return in your lifetime. I tell our clients on a regular basis, you never know when the perfect buyer will knock on your door, or when circumstances in your life will accelerate your need to sell your company (illness, divorce, etc.).
To maximize your company value and sale price, we advise CEOs to:
1.) Take a proactive approach to preparation for a sale2.) Optimize your growth strategy and company KPIs/metrics, and3.) Conduct a competitive sale process at such time you decide to sell in the future. Below are key factors in your business to build value, make your company sellable and attractive to future buyers.
Growth Rate
The growth rate of your business is critical to the value of your business and the attractiveness to an acquirer. Small to mid-size businesses that grow 10% per year are not attractive to buyers given the many other options they have to acquire faster growing businesses. If your growth rate is slow or stagnant (and less than your industry growth rate), there are issues that you need to address in your business and your sales strategy if you expect to exit at some point in the future. This key factor - Growth Rate - applies to all types of businesses all the time, and a business advisory firm such as CEO Advisor, Inc. are experts in growing small to mid-size companies, as well as, preparing CEOs and their companies for an optimal exit.
Size Matters
Strategic buyers and Private Equity firms that are dedicating people and resources (their M&A or investment team) to acquiring a majority or 100% of a company tend to focus on larger companies. It takes just as much (actually more) time to acquire a small company than it does to acquire a mid-size or large company.
Acquirers are looking for Revenue and Profits that will move the needle of their business. They want strong management, large markets served for future growth, and Revenue that is substantial, forecastable, recurring and predictable. Kick into growth mode to increase Sales, Profits, the value of your business, and formulate an exit strategy to generate your golden opportunity to sell.
Recurring Revenue
If you are only as good as your last project, you are in the Services category valuation-wise and not optimizing your value. Acquirers see value in recurring, contracted Revenue. Not just loyal customers that buy semi-regularly (re-occurring Revenue), but a strategy and business model with long-term, contracted customers that is forecastable and predictable. You need to have a business model for high valuations and that has staying power to attract buyers in order to have them pay you handsomely for the customers you have secured and for your many years of hard work.
Gross Profit Margin
Your Gross Profit Margin (GPM), or Sales less Cost of Goods Sold divided by Sales, is the number one factor that points to the profitability of providing your products and services (before overhead/expenses). Acquirers are attracted to businesses with high GPM as this will typically result in high Net Profit, Net Profit Margin and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
Depending on your type of business (manufacturing vs. service vs. software have very different Gross Profit Margins), you need to have a GPM that is at or higher than other companies in your industry to optimize your value. If your Gross Margins are low, seek advice from a business advisor as you are, 1) Leaving a lot of Profits on the table, 2) Penalizing your business value substantially, and 3) Greatly limiting your ability to find a buyer upon selling your company.
Churn Rate
Churn Rate is a critical metric in the value of your recurring Revenue company. Both Revenue Churn and Customer Churn must be tracked and improved on continuously. Churn Rate for each of these metrics should be below 1% per month, and Renewal Rates should be targeted at 93% annually.
Management
Strong management is always a key factor in running and growing a sustainable business that is valuable and attractive to buyers. Interim management (business advisors, CPAs, attorneys, etc.) work well for smaller and mid-size companies until they reach a certain size where a full-time permanent management team can be hired. If you are the lone senior executive in your company or your management team is lacking seasoned expertise, you need to gain additional expertise and experience from a seasoned, hands-on business advisor to help you grow and build value in your business.
CEO Advisor, Inc. has over decades of experience and expertise in hands-on advising of small and mid-size businesses, including growth and strategy, building value, formulating an exit strategy and preparing a company for an optimal sale.
Do You Have an Exit Strategy for Your Family Owned Business
For most family and closely-held businesses, planning for succession and an exit strategy is the toughest and most critical challenge they face. 88% of current family business owners believe the same family or families will control their business in five years, but succession statistics tell a different story.
According to The Family Firm Institute:
3% of businesses operate into the fourth generation and beyond.There is a disconnect between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations.Research indicates that failures can essentially be traced to one factor: lack of family business succession or exit planning. Family Business Statistics
The statistics regarding family businesses is a tough story regarding their long-term sustainability: It's estimated that 40% of family business owners currently expect to retire, 70% of family businesses would like to pass their business on to the next generation, of which only 30% actually will be successful, and nearly 43% of business owners have no succession plan in place. Keep in mind, selling the business might be the best option for you AND your family.
When does selling your business make more sense?
Like so many things in life, timing is critical. To secure a buyer and gain the best price and terms, you should preferably be healthy and the business should be on an upswing with improving financial statements, as well as, in a strong economy. Today's interest rates are only a temporary minor issue as financial markets and valuations remain relatively strong for now.
CEO Advisor, Inc. has decades of experience and expertise in hands-on advising of small and mid-size businesses, including accelerating growth, formulating an exit strategy and preparing CEOs and businesses for a sale of their company. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
According to The Family Firm Institute:
3% of businesses operate into the fourth generation and beyond.There is a disconnect between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations.Research indicates that failures can essentially be traced to one factor: lack of family business succession or exit planning. Family Business Statistics
The statistics regarding family businesses is a tough story regarding their long-term sustainability: It's estimated that 40% of family business owners currently expect to retire, 70% of family businesses would like to pass their business on to the next generation, of which only 30% actually will be successful, and nearly 43% of business owners have no succession plan in place. Keep in mind, selling the business might be the best option for you AND your family.
When does selling your business make more sense?
Like so many things in life, timing is critical. To secure a buyer and gain the best price and terms, you should preferably be healthy and the business should be on an upswing with improving financial statements, as well as, in a strong economy. Today's interest rates are only a temporary minor issue as financial markets and valuations remain relatively strong for now.
CEO Advisor, Inc. has decades of experience and expertise in hands-on advising of small and mid-size businesses, including accelerating growth, formulating an exit strategy and preparing CEOs and businesses for a sale of their company. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
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