The prudent outlook of Business Owners:
As is often the case, business owners are totally focused on the constant issues of running their business. However, if they are contemplating the sale of their company it is time well spent to contemplate their business value in the eyes of the ultimate buyer.
The cash flow that the business generates is KING as this almost single-handily determines the value. The “almost” comes from other considerations like the balance sheet, the barrier to entry, and growth opportunities, to name a few. Therefore, their cash flow needs boosting, if practical. This, of course, comes from either increased sales or reduced expenses. The business owner may determine that this would require some difficult changes in direction (e.g. termination of an employee) and prefer to allow the new owner to make those tough decisions. But understand the transactional value will rarely include savings that have not yet been reflected on the income statement.
Irreplaceable business owners selling makes a business much less valuable! It is imperative for the business owners to understand that if post-closing there is no involvement in the business the potential new owner will be focused on the appropriate candidate to take over. If the buyer is an industry buyer (strategic) there could well be someone within the buyer’s organization who can run the newly acquired company. However, if the buyer is a financial buyer this candidate is more difficult to locate. Therefore, if the seller has an interest in staying involved in running the company post-sale or if there is someone else within the organization that is either now in-charge or is capable of running the company, then the buyer will more freely move forward.
Bottom Line: “Business owners should look at their business as they would if they were the buyer”, says Emmett Barnes, President of The Montana Group (www.montanagroup.com).
