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January 2012 Corporate Finance Let’s Talk Numbers Keys to maximizing the value of your business Some things bear repeating. For instance, the sale of a business requires that its owner or owners do some serious planning and implement measures that will not only speed up the sale process and make it more effective, but also maximize the value of the business. An overview of the ten items that we believe to be crucial in attaining this objective is provided below: Mathieu Gauvin CPA, CA, CFA, CBV Partner [email protected] 1. A vision and strategy to ensure buy-in from all of the company’s stakeholders • Investors, lenders and other financial partners. 2. A solid and diverse management team • Avoid one-man shows (dependence on a single individual). 3. Structured and effective corporate governance • Makes it possible to align the seller’s organizational culture with that of a potential buyer that has a more highly-structured organizational model. 4. A solid business plan • The buyer must be made to understand how it can continue to generate upside value. • Financial projections must be based on realistic and credible assumptions. 5. Position the business to make it attractive to more than one strategic buyer • Impact on the premium that such buyers will be willing to pay. Keys to maximizing the value of your business (cont’d) 6. Understand and maximize value drivers • Intangible assets (technology, trademarks, distribution network, etc.). • Focusing business efforts on the primary value drivers to develop their full potential. 7. Manage the balance sheet efficiently • Eliminate all non-operating assets (e.g. marketable securities, rental properties, unused intangible assets) and intercompany/shareholder loans. • Sale and leaseback of the company’s operating facilities. • Accelerate collection of receivables. • Reduce working capital. 8. Record actual earnings and maximize the profitability of the business • Eliminate inventory reserves and value them appropriately so that they will reflect the true profitability of the firm. • Record all income (eliminate unrecorded cash sales). • Eliminate all expenses that are unrelated to the operations of the firm. 9. Resolve all outstanding tax-related problems or legal actions 10. Minimize concentration (clients, suppliers, technology) • Avoid centering sales on a single client, purchasing from a single supplier, or developing and marketing a single technology. Before entering into any process to sell a business, the owner or owners must first identify their needs and objectives, develop the best strategy for bringing the transaction to fruition, identify the potential buyers/investors that will be approached and prepare a full disclosure document identifying and highlighting the major value drivers of the business. Accordingly, the choice of the right advisor is a key factor that all entrepreneurs should consider as soon as they decide to launch the process of selling their business. EVOLUTION OF EXCELLENCE