Almost all CEOs say an investment banker played a significant and helpful role in the sale of their business. Many say they sold their business for more than they anticipated thanks to the input of the advisor.
So it might seem like hiring an advisor is a given. But many sellers are skeptical of upfront costs, and interested in keeping them under control. Think twice before discounting the value of an advisor. Here are three specific ways they can help.
Identifying Management Weak Links
No one is perfect, and owners often have blind spots when it comes to their management team. There may be longstanding team members who are no longer equipped to handle the demands of your business. Many managers address this by using their own institutional knowledge to keep things running smoothly
A weak team and an over involved owner are glaring red flags to a buyer. This can lower the valuation, produce unfavorable terms, or even kill a deal altogether. While you might know this is a theoretical risk, it’s hard to see it in your own business. An advisor removes your blinders.
Finding Easy and Fast Ways to Increase Cash Flow
Businesses can fall into a pattern of inertia. Change is hard. Advisors offer new perspectives and plenty of hard-won experience that can help you identify and implement quick new cash flow strategies.
In some ways, increasing cash flow is simple. It requires a more diverse customer base, recurring revenue, and new opportunities to increase productivity while minimizing cost. But many owners are unsure how to actually accomplish these ends. That’s especially true when doing so demands challenging decisions that can negatively affect your staff. An advisor helps you weigh the benefits and risks, and encourages you to break out of your comfort zone into a zone of greater profitability.
Get Your Financials in Shape
Financial foresight is vital to a successful sale. The buyer will want to know whether the business is well run, with the necessary reporting that proves it. Look at your business for the first time, as a buyer will, rather than through the rose-hued glasses of an owner. It’s not enough to just throw out numbers. You have to prove, based on a clear formula and specific numbers, that the key drivers of profit are likely to increase in value. Diligent record-keeping and reporting are of paramount importance. Your advisor offers an unbiased assessment of your records, and can help you ensure you have the information necessary to sway the opinion of a skeptical buyer.
Most buyers view trailing twelve months EBITDA as the most important figure. That means the business has to be in excellent shape at least a year prior to the sale. This demands that you build a team, reduce dependence, boost cash flow, organize your financials, and get your house in order in time to address any issues that arise.
When considering hiring an advisor for your exit, get started early. Thirty-six months prior to the deal is ideal, but at least shoot for 24 months. The more time the advisor has, the better the end deal will likely be for you.