Maximize Business Value - Before Exit

Maximize Business Value

Before Exit

Realize Full Gain on Business Value Growth

Increase Value Multiple / Sale Price

Strengthen Team and Leadership

Easier to Run Business Day-to-Day

White Paper

B U S I N E S S V A L U E G R O W T H

GROWTHALLIANCE

growalliance.net | 877-330-7070 | [email protected]

mailto:[email protected]

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growthaliance.net | 877-330-7070 | [email protected]

Contents

Thinking About Exiting 3

Business Value Growth | Before or After Exit 4

Think Like a Buyer 5

Maximize Business Value 8

Profit Improvement 9

Revenue Growth Acceleration 11

Team Building / Leadership 13

Summary | Next Steps 15

by:

Jack Zimmanck

Jeff Cartwright

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Thinking About Exiting Your Business You may have talked to your CPA and attorney and perhaps your personal financial advisor.

While they were helpful, the path to maximizing the value of your business is still unclear and

likely to require a fresh perspective, new skills and a steep learning curve. It is also likely that

professional assistance in a number of areas will produce a substantially improved result.

Exit Guidance

This paper endeavors to fill knowledge gaps and provide an overview of the steps involved

preparing a business for a transfer of value (sale, partner buy-out, ESOP, etc.) Once the

decision is made to transfer value, the business becomes a product whose value is scrutinized

by buyers and can be enhanced to attract more buyers and improve the selling price.

Business Exit Stages

First Steps / Personal

Business Value Growth

Exit Transaction

Current Trusted Advisors

Provide initial perspective and

preliminary exit preparation

CPA

Attorney / Tax attorney

Personal wealth manager

Tax attorney

Advisors / Services

Enhance business value, and

exit value multiple

Business valuation service

Value Growth advisor

Exit planning advisor

Advisors / Services

Support transaction preparation,

sale, negotiation and closing

Investment banker / Broker

Corporate attorney

Tax attorney

Insurance / ESOP advisor

Actions

Exit proceeds plan

Tax planning

Family / partner dialog

Post-sale life plan

Actions

Business valuation baseline

Value Growth strategy / plan

Profit Improve initiative

Sales growth initiative

Team / Leadership initiative

Actions

Prepare offering

Contact, present to buyers

Negotiate transaction

Close transaction

Allocate exit proceeds

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Value Growth | Before or After Exit

Value Growth After Sale (Buyer Profits From Value Growth)

A well-known example of Business Value Growth is the approach private equity groups take

following the acquisition of a target business. They develop a Value Creation Plan to improve

the business and add value during their ownership, insuring that the business value and selling

price when they sell that business, has been maximized.

Value Growth Before Sale (Seller Profits From Value Growth)

PE firm’s Value Creation Plans focus on accelerating business change, ensuring strong “value

creating” activities and tight accountability for results in the shortest possible time. This sharply

focused plan ensures alignment of the management team with business objectives and creates

a sense of urgency and a winning attitude as the foundation for a change oriented culture.

Growth Alliance guides your team to create a Value Creation Plan for your business so that

Business Value Growth is maximized Before Exit, enabling you to receive the full benefit of the

improved value, rather than the buyer.

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Think Like a Buyer

Thinking like a buyer provides important insight into where and how to invest time and

resources to enhance your business value. From the time you decide to sell until the sale

closes, every decision regarding the sale is best viewed through the eyes of your target buyer.

Buyer’s View of Business Value

The buyer’s assessment of a business revolves around reducing exposure to future risk and

maximizing the opportunity for future growth. These opposing concepts are constantly at work

as buyers identify potential businesses to buy and during the due diligence process as they

screen purchase candidates.

Two Types of Value

As buyers evaluate purchase candidates and later during due diligence they are looking for risk

and opportunity hidden in two types of value.

Tangible Value (On the books)

Buyers closely scrutinize and conduct a substantial part of due diligence on tangible value that

can be seen, measured and has already been realized. Plans that have not yet been translated

into measureable results are heavily discounted. Tangible value provides buyers and their due

diligence team with a clear path to measure historic performance, inventory, fixed and financial

assets and validate the accuracy of the information in the offering memorandum.

Audited financials

Above average profitability and market share growth

Cash flow

Product inventory

Plant and equipment

Employees / management head count, job descriptions and organization structure

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The hard numbers of tangible value establish the baseline for measuring the one business

relative to another, but is not the final determinant of value or appeal to a sophisticated business

buyer.

Intangible Value (Off the books)

When the buyer’s due diligence team is satisfied that tangible value is “as advertised”, intangible

value becomes the principal driver of business value and interest for high-value buyers.

Intangible value is comprised of non-physical attributes that cannot be seen, counted or

precisely measured and are the building blocks of future earnings and growth.

Intangible Value Premium

Smart buyers are focused on the future. A business that has strong leadership, solid customer

base and a culture of success, assures buyers that the business will be worth more in the future

than today. Investment in people, processes and capabilities build confidence and create a

path to the future that buyers can see, understand and willing to pay a premium to acquire.

Intangible Value Drivers

Internal Strengths

Market Focus

Culture of Success

Strong team / leadership

Documented processes

Advanced tech strategy

Seasoned work force

Certifications (ISO, Lean)

Proprietary processes

Intellectual property

Unique products / services

Intense customer focus

Well respected brand

Innovative value creation

Strong Marketing / Sales

Responsive to market

Strong digital presence

Top quartile market position

Excellent cust. experience

Growth in profitability

Growth in Revenue

Overcomes obstacles

Results driven

Blue chip customer base

Broad distribution network

Readily solve problems

Cohesive / collaborative

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Buyers Don’t Pay for Risk

Buyers see risk factors like those below as substantially lowering business value wile mitigating

these risk factors will positively impact business value.

Excessive owner dependence

Significant customer concentration

Disproportionate employee turnover

Historic declining revenue and/or profitability

Over concentration of supplier base

No clear path forward

Perceived barriers to growth

Your Target Buyer Profile

Your target buyer profile is the key benchmark for evaluating key decisions about value growth,

value documentation and positioning your business for sale. Your ideal target buyer is largely

determined by decisions you make as you establish your level of readiness to sell. At the end

of the process, you may well sell to someone other than that original target, but along the way,

you will have maximized your business value for all buyer and stake-holder alike.

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Maximizing Business Value | Growth Plan

While similar in concept to the Private Equity 100 day plan, Growth Alliance value growth

approach is tailored to your business objectives, priorities and capabilities in three key areas.

Profit Improvement

Revenue Growth Acceleration

Team building / Leadership

First Step | Business Valuation

We begin building Value Growth Plan with issues identified in recent business valuation and

work with team to uncover additional opportunities to enhance business value. If current

valuation is not available, we conduct a basic valuation to establish the baseline value for

tracking Value Growth initiatives.

A professional business valuation establishes the current price buyers are likely to pay for the

business “as is” and sets the baseline for going to market immediately or measuring the

effectiveness of value growth initiatives before the sale.

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1. Profit Improvement

Hidden profit opportunities are often overlooked during the day-to-day activities of business

operation and provide the opportunity for almost instant additional bottom-line profits…and fresh

resources to invest in value growth.

Financial Engineering

Finance and operations departments tend to operate independently of each other. In many

small and mid-market businesses, finance is sharply focused on current expenses, accounts

payable and accounts receivable. Operations departments are focused on making and shipping

top quality products, leaving little time to strategically transform the business to a higher level of

operational and financial performance.

To reverse this short-term focus, we review accounting and financial processes to ensure timely

monthly closing and reporting of key financial indicators. Other areas for financial review

include facility sale and leaseback, debt/equity structures and balance sheet items that improve

current return. While these are normal and necessary steps, they do not add value per se, but

facilitate the following activities that build business value.

Shop Floor Productivity

The urgency of manufacturing and shipping rarely allows time to challenge how the tasks are

accomplished. Over time processes become executed by default rather than by design and

inefficiency creeps in. In most cases, even a cursory review of existing processes reveals

inefficiencies, excess resources, and under-performing operations.

To regain efficiency, conserve resources and optimize operations we work with your team to

Identify constraints and inefficiencies limiting growth and profits, starts with the strategic

question “what is holding back the business from growing”? With bottlenecks identified, we

guide sequential operating performance improvements and significant productivity savings.

Beyond Manufacturing

Optimizing functions, beyond the manufacturing floor results in near-term profit improvement

and long-term competitive advantage. While most manufacturers spend more on raw-materials

http://www.growthalliance.net/financial-re-engineering.html

http://www.growthalliance.net/shop-floor-productivity.html

http://www.growthalliance.net/beyond-manufacturing.html

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and components than any other category, few view purchasing, value engineering or talent

management as strategic opportunities for profit improvement and sustainable competitive

advantage.

Our end-to-end approach works from the finished product backwards, identifying opportunities

for saving in product design, product engineering, materials procurement and managing the

talent that creates and builds your products.

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2. Revenue Growth Acceleration

Topline growth is driven by three customer-facing capabilities that connect in a seamless

process that begins with customer demand and continues through creating, positioning and

communicating value to exchange, deliver and sustain long-term customer value.

Sales Acceleration

The digital marketplace has blurred the distinction between sales and marketing into a single,

end-to-end function that begins with lead generation, qualification and education and feeds the

sales pipeline with pre-conditioned leads that are easier to work and faster to close.

Growth Alliance works with your team to define a clear vision of the future, strengthen sales

leadership and align technologies and training with forward-looking growth strategies, building a

strong foundation to support long-term sales growth and competitive advantage.

Marketing Impact

Strengthen and align strategic and tactical marketing capabilities with sales objectives and

customer services teams to create, communicate and deliver the highest value to your

customers.

Tactical Marketing

Tactical marketing has a near-term, tactical focus on communicating the value that fills sales

pipelines with pre-qualified leads and communicates compelling brand character. Tactical

marketing is driven by the crafts, skills and creative ideas that enable timely communication

of clear value messages and brand images.

Strategic Marketing

Strategic marketing takes a longer, 3-5 year view, focusing on understanding and

harnessing the forces that shape markets, drive demand and defeat competition. Strategic

marketing is the “big Picture” perspective required to interpret market movement and guide

business strategy and direction. Key elements are a cluster of strategies that powerfully

shape the competitiveness and future growth including: business and marketing strategy,

http://www.growthalliance.net/sales-acceleration-2.html

http://www.growthalliance.net/marketing-impact.html

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brand strategy, product strategy, competitive strategy, distribution strategy, marketing

technology strategy.

Customer Experience

Customer Experience is the living expression of your brand, and is the sum of all interactions

a customer has with your business at all points of contact, measured against their expectations.

Customer Service has evolved from an expense line-item into a key strategic element

of brand strategy and the single most powerful brand and product differentiator, brand and

builder and customer advocacy support mechanism.

Growth Alliance works with your team to strengthen and align strategies, processes and

technologies to deliver winning experience to your customers with a transaction process that is

easy to engage, respectful, trustworthy, consistent, thorough and enjoyable.

http://www.growthalliance.net/customer-service.html

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3. Team Building / Leadership

Among the most powerful business value drivers is a proven management team capable of

continuing profitable operation and strong revenue growth with little or no input from the current

business owner. This team and its leadership is the living core of future business growth and

among the most important drivers of the intangible business value business buyers are seeking.

Leadership

Top performing teams don’t just happen, they are the result of thoughtful planning, thorough

training and exceptional leadership. The formula for organizational success is leadership who

understand their significance to the team and the teams’ importance to successful outcomes

resulting in accelerated growth, improved profits and enriched value of the business

Organization

In many privately-owned businesses the organization was not purpose-designed, but grew

organically. As need arose, a new positon was added to the existing organization with little

concern about overall operational efficiency or departmental relationships. As the business

grows the inefficiencies compound inhibiting further growth, waste resources and reduce profits.

Company-wide reorganizations to address these inefficiencies can often be risky and always

disruptive. Restructure of individual departments conversely can be much more controllable,

predictable and manageable and the results can be quick and spectacular

Coaching / Training

Major growth, profit improvement or preparation for sale demands a well-defined plan to

strengthen the existing proficiencies of leadership and their processes to achieve exceptional

results.

Assessment

Effective collaboration and communication begins with identifying the strengths and needs

of leaders and their teams. We take great care in providing reliable assessments, with

professional interpretation to manage relationships with precision and improve team

performance.

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Coaching

Coaching identifies the strengths as well as the “needs” of a leader. It challenges individuals

to discover deeper self-awareness, develop stronger team relationships, and achieve a

greater sense of organizational purpose.

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Summary

Value Maximization

Maximizing Business Value Before Exit provide seller the opportunity to reduce issues buyers

find risky before taking business to market and, at the same time enhance elements buyers find

valuable. Both actions translate into a larger pool of buyers, higher value multiple and stronger

exit price.

.

Growth Alliance begins with baseline market value, developing priorities and actions and work

with your team to define a value growth strategy and action-plan that fits your business, your

team, your resources and your growth objectives.

Impact on Your Business

Make the improvements that Private Equity groups would make before selling business

and realize the value of those improvements in the selling price.

Establish solid track record of improvement in revenue, profitability and operability that

reduces buyer perception of risk and increases the business value.

Reduce reliance on seller as the business operator and allow development of team for

continued profitability and growth for buyer.

Make business easier to run with fewer day-to-day operational problems enabling you to

focus on strategic growth

Next Steps

Contact Growth Alliance to discuss your business exit ideas and how we can help enhance the

value before the transition.

877-330-7070 | [email protected]