A good portion of our industry is comprised of family-owned companies which have been passed down from generation to generation. To manage family succession, companies have continued to groom family members as successors to take over the management of the company.
However, some owners may now find themselves at a point where they no longer have a successor for the business. As such, they are now considering selling their company to an external buyer. If you are at that point, you are probably asking yourself “Am I Ready To Sell My Company?” Let’s explore this important question further to determine if you are ready.
It starts with understanding value. If an owner wants to sell, they should make sure that their business value is strong, possibly even at a peak. To understand your company’s current position, there are a few consistent themes which lead to higher values in our industry:
Strong market position
- Companies with a leadership position in their local markets generally command high value. Is your brand well-known to both customers and prospects? Do prospects understand how your service and products differ from the competition? Do you focus on gaining leadership in one (or at most two) market segments (e.g. industrial, F&B, healthcare, hospitality/hotel/motel)?
- Market leaders tend to be more focused. Their customers align closely with their strengths. Those who struggle to get top value are often more scattered in the types of customers they support. While they may be a successful company, it is harder for them to demonstrate leadership and differentiation in the markets they serve.
Track record of consistent performance
- Buyers will assume that the financial performance you have achieved will continue after the close of the transaction. As such, have you established consistent revenue growth and profitability over multiple years? Profitable growth has proven to be a powerful value creator.
- If you have struggled with consistent performance, are there reasons which are explainable to buyers regarding fluctuations? Are your earnings at or near industry-leading levels? If not, do you know why?
Buyer friendly characteristics
- Employees: Our industry relies on strong management and a stable base of front-line employees. Have you been able to retain your best performers over the long-term? Are your turnover rates manageable enough to indicate stability in your workforce?
- Contracts: Another critical area is maintaining contracts with customers. Buyers will struggle to place value on revenue that is not tied to a contract. It is that simple.
Thoughts on your plant
- While the plant can be a source of pride in what you have built over the years, I urge caution in assuming it is highly valuable. In some cases, the buyer may not want it at all.
- It starts with understanding your most likely buyers, their position in your market and whether they need additional capacity.
- More serious environmental issues will likely end any buyer interest in your plant.
Establishing a plan
While some companies can put themselves on the market tomorrow and get top value, others aren’t in the same position. Most companies I meet require a plan to focus on specific weak spots to improve value before they are ready to sell.
There are a few critical steps you need to take to develop your plan.
Step 1: Establish range of value
- You should first understand what your company is worth today and why. You will also want to understand what your company could be worth if all factors were working in your favor. This creates the full range of possibilities for value.
Step 2: Understand who are your most likely buyers
- A key part of assessing value is to identify and understand the local market position of your best fit potential buyers. Do they compete in the same segments as you? How does your market share compare to theirs in your markets? What factors in your business will they consider to be strengths and which will be considered weaknesses?
Step 3: Assess your ability to improve value.
- Some factors are easier to change than others. For example, it is fairly easy to renew an expired contract. It is much harder and may not even be feasible to change factors such as your revenue mix (e.g. product mix, customer mix) or service area covered.
- For each factor, you need to assess the effort and investment required to improve and what the improvement could mean in terms of increased value. If the likelihood of getting a return is low, there may be no value in making the investment.
Step 4: Implement the plan to improve value
As noted above, the first step should be to establish the range of value. To do this, we recommend you engage an industry professional to complete a business valuation. The valuation should include:
- A range of value which includes the likely minimum/maximum values you should expect.
- A thorough review of value factors. This should include factors which are both enhancing to value and those which could be mitigating your value.
- Review of potential buyers and Identification of best fit buyers. Who is most likely to be interested in your business and why?
- Actual results. The vendor should be able to demonstrate a comparison of their valuation estimates with actual values offered in a competitive bid situation.
Selling your business requires planning and can take some time to achieve readiness. If you are reaching an age where you no longer want to work, and don’t have a clear successor to take over, you need to begin the process of selling your business soon.
By developing a clear understanding of both your company’s current and potential value, you can assess if there are any opportunities to improve. If the return is there, you should focus on developing a plan. However, you may find your value is at a maximum right now with no further actions required. For companies in this situation, the answer to the question “Am I ready to sell?” is likely “Yes”.
Envise Partners is an advisory firm which helps industrial laundry companies increase the value of their business. To learn more visit EnvisePartners.com.