Written by: Brendan Tierney, Managing Director, Head of Global Water within Raymond James’ Investment Banking Group
Run Your Business Every Day as if You’re Going to Sell It Tomorrow
In my role as a Managing Director, Head of Global Water within Raymond James’ Investment Banking Group, I am often approached by private company owners who seek assistance in monetizing their businesses.
I advise these clients that there are “Four P’s” to a successful sale process: Preparation, Positioning, Process and Problem solving. Though the last two are very specific to each business and its objectives, situation, timing and advisors, there are best practices related to preparation and positioning that every business owner and leader could implement to potentially increase the value of the enterprise.
I frequently observe owners and management teams “beginning the sale process” six to twelve months prior to the desired close date. While this certainly provides enough time to complete everything needed as part of a sale, starting even earlier has several benefits. Primarily, many of the tasks completed ahead of a sale - such as a quality of earnings review, market study, due diligence preparation - are performed because a buyer will likely require them. The reason buyers require these, and other items, is because they find value in them - as the current owner, so should you! Completing items typically done in a sale process, as well as the others recommended below, in advance provides the time to consider and implement changes, reduces uncertainty and workload during a process, and should lead to value creation whether you’re planning to sell or hold your business. In short, the below can help you create your best business for the benefit of current and future shareholders, as well as other stakeholders, such as customers and employees.
ORGANIZATIONAL
Board of Directors
Put in place an experienced and capable board of directors that would inspire confidence during a sale process
Recruit industry experts and global leaders
Management Teams
Build a deep team by filling in gaps, if any, in the management team to ensure that the team will be able to lead the organization during and after the process
Capture key metrics of success and ensure goals are clear and well-resourced
Compensation Plans
Establish incentivized compensation plans to align employee and company performance
Create an options pool with targets that incentivize managers to achieve company milestones
Employees
Continue to foster collaboration and unity within the workforce
“Culture” is important not only to those who have helped you grow the business but to those seeking a seamless integration with a cohesive workforce
Offer the opportunity for employees to advance further their educations, career trajectories and retirement nest eggs
OPERATIONAL
Best Operating Practices
Encourage the implementation of lean, kaizen and/or other operating efficiency initiatives
Hold workshops and consider bringing in outside consultants
Internal Procedures
Institute a culture of safety by implementing company-wide and application-specific safety protocols and training
Publish employee handbooks and procedures and provide training on HR-related topics
Marketing
Develop a cohesive, global brand identity
Coordinate messaging across external touchpoints
FINANCIAL
Audited Financials
“Clean up the books” to ensure that the relevant financial statements are properly organized for external review
Receive audited financials from a reputable firm and avoid a turnover in firms
Well-Prepared Projections
Create well thought out projections that realistically forecast the company’s future financial performance
Use a bottoms-up / top-down approach and consider multiple factors
Balance Sheet Management
Implement a sophisticated ERP system and scrutinize days-based metrics
Improve management of operational drivers for working capital (accounts receivable, inventory and payables)
OTHER INTERNAL
Updated Agreements
Update any contracts or agreements that may have expired or be subject to scrutiny during due diligence by external parties
Prepare schedules, such as customer lease and supplier agreements
Business Continuity
Develop a disaster-preparedness plan and ensure key personnel are practicing their respective roles
Invest in back-up servers, off-site locations, and redundant communications equipment
Legal Matters
Proactively handle any legal, environmental and HR matters that would serve as a distraction for the company
Organize legal documentation, including developing clear paths to resolution
PROCESS ENHANCEMENT TOOLS (“PET”s)
Quality of Earnings (utilized in approximately 90% of RJ-led process)
Hire an accounting firm to review the detailed trial balances underlying the financial statements
Frequently leads to finding “add-backs” related to ownership or other non-recurring costs
Market Study (utilized in approximately 75% of our process)
Hire a consulting firm to analyze the company’s end markets, competitive position and customers
Can help with determining capital allocation decisions and often uncovers opportunities
Management Presentation Coaching (utilized in approximately 65% of our process)
Hire a training coach to work with the executive team and improve their messaging and presentation skills
Skills developed can help management’s communications with customers and buyers
I would encourage any private company owner exploring a sale to reach out to me for a collaborative consultation.
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