Category: Entrepreneurship

Prepare For Your Successful Exit: Start With An End In Mind – Part 4

In Entrepreneurship, Finance, Mergers & Acquisitions (M&A) // on December 13th, 2016 // by // No comment

business growth strategic planning business and money

When should you start your exit planning? The time to be thinking about the sale of your company is when you start it. Everything you do from Day 1 should be focused on driving enterprise value upon sale.

Startup entrepreneurs typically fail to consider when and how they will prepare for an eventual exit. Thinking with the end in mind, companies manage their businesses better and that helps prepare them to sell.

How do I prepare my business for my eventual exit?

Measure Success
The core strategy to improve your business and achieve your periodic and long-term financial metrics is to use key performance indicators (KPIs).

KPIs are the metrics that judge your business’s performance based on the success you would like to achieve. They serve as your scorecard.

By incorporating key financial ratios and metrics into your regular internal financial reporting and understanding how these measurements impact value, it will allow you to be more proactive and strategic in your decision-making.

Many buyers appreciate this type of reporting as it suggests not only that you are managing your business strategically and with an eye toward key operating metrics, but it also help them understand your business better, which can reduce perceived risk.

Most small to mid-sized businesses are lacking in financial and operating information that is readily available to help managers make decisions. By having this information ready and in a format where buyers can quickly understand trends and indicators, you will likely increase the perceived value of your company and will be in a better and more informed position to make important decisions along the way.

Key Performance Indicators (KPIs)
Financial
Sales / revenues
Amount and percentage of cost of goods sold
Amount and percentage of marketing costs
Amount of inventory levels
Amount of accounts receivable
Amount and percentage of net income
Number of key financial / operating ratios (examples – current ratio, quick ratio, debt ratio, asset turnover ratio, sales/working capital ratio, etc.)
Most important for a startup – Amount of cash / cash flow

Customer
Number of customer leads
Customer conversion rates
Number of new customers
Number of subscribers
Percentage of customer satisfaction

Product
Number of products manufactured
Number and percentage of product defects

Employee
Percentage of employee turnover
Number of new employee hires
Amount of payroll

Other
Number of PR mentions
Number of website visitors
Other metrics that are specific to your business and industry

Metrics for a technology startup might include:

Intellectual property – patents
Technology
Quality and depth of your development team

#ExitPlanning #Startup

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Prepare For Your Successful Exit: Start With An End In Mind – Part 3

In Entrepreneurship, Finance, Mergers & Acquisitions (M&A) // on November 15th, 2016 // by // No comment

business growth strategic planning business and money

When should you start your exit planning? The time to be thinking about the sale of your company is when you start it. Everything you do from Day 1 should be focused on driving enterprise value upon sale.

Startup entrepreneurs typically fail to consider when and how they will prepare for an eventual exit. Thinking with the end in mind, companies manage their businesses better and that helps prepare them to sell.

What can I do to maximize the value of my business upon my exit?

Before you think about selling your business, you should (1) avoid preconceived ideas about what its value “should” be and (2) retain a qualified valuation expert or consultant to obtain a neutral third-party estimate.

Identify ways to enhance your company’s value in the eyes of a buyer.

  • Synergies expected from a merger/acquisition
  • Cash flow and profitability
  • Supplier relationships
  • Distribution network
  • Quality and depth of your management team
  • People and intellectual capital
  • Quality and reputation of your business
  • Customer relationships
  • Growth trends for key products and services
  • Intellectual property – patents, trademarks, brand
  • Technology

 

#ExitPlanning #Startup

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Sell Your Business: Assemble Your Internal and External Teams

In Entrepreneurship, Finance, Mergers & Acquisitions (M&A) // on November 8th, 2016 // by // No comment

Exit strategy

 

 

 

 

 

 

 

#ExitPlanning

Your internal team

During divestiture, owners face one of their most sensitive and critical tasks determining those key individuals at the company who need to know about the transaction.

For owners, the art lies in forming the right internal team. The correct people must be identified to gather information and interact with buyers. At the same time, the group must be narrow enough to control the consistency of the seller’s message and minimize overall distraction from day-to-day operations. Generally, it’s best to keep the group as small possible, typically, 5 to 10 individuals. However, the circle may expand as the process progresses and as more and more internal leaders are needed to meet with buyers and demonstrate the depth of management.

Your external team of advisors

Given the limited bandwidth of a typical seller’s resources, the nuances of the process, and the fact that the sale often represents both a life-changing and once-in-a-lifetime event for owners, experienced external advisors, lawyers, accountants, and investment bankers, can be critical. Good advisors can smooth and accelerate the process while helping accurately recognize value and provide insight and guidance in complex areas. Finally, the objectivity that advisors provide can be crucial to owners faced with many emotional, highly subjective decisions.

Get a good adviser. Because selling can be the most important event in the life of your company, it is critical to have an experienced advisor in your corner – before it is up for sale. The right professional can help you navigate complexities and identify a buyer who represents the best fit and the highest price. Lawyers and accountants are advisers on their respective areas of expertise. Businesses brokers and for larger companies, investment bankers, are the advisers that will provide valuation advice, buyer solicitation and negotiation, and oversight on closing a transaction.

An experienced adviser can help negotiate the deal’s nonfinancial terms, such as your employees’ future, your ongoing role in the business, non-competes, and earn-outs. They can help develop an exit plan and determine the best timing and implications for your sale, which are important in an uncertain marketplace.

Determine the right type of buyer. The best buyers for your company may be unknown to you. They must have both the means to pay what your business is worth and the motivation to see the deal through. They also should have some strategic goal for acquiring your company, such as tapping into a new market. Understand the buyer’s motives, and you will be at an advantage when it comes to maximizing proceeds from the sale.

Have alternative buyers. With only one, you run the risk of weakening your negotiating position and giving up control over the transaction. More than one buyer in the process broadens your options and creates a more competitive environment. A buyer that bears consideration is a financial buyer, such as a private equity group. It will likely offer less money than a company seeking a strategic acquirer, but is often ready to move more quickly. Depending on the seller’s situation, a financial buyer may be the only option.

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