Whenever owners ask us “What is the first step in the Generational Equity M&A process?” our answer is always the same – a company evaluation.
Think about it – would you put your house up for sale without a professional valuation? Of course not. Then why would you treat your most important asset any differently? A comprehensive valuation is the essential first step, as it gives you an initial estimate of much you should expect for the hours of dedication you put into your company.
That’s why at Generational Equity, we make business valuation the first step in a successful exit strategy. Determining a company’s value is not formulaic – it is both an art and a science. Your financial records and projected growth statistics are key components, but it is also about interpreting these in the context of your business, market and industry.
Don’t believe those that say you can only “ballpark” the true value of a business. With the right professional advice, you can determine a potential measure of value in your company.
Find out more in our free-to-download white paper Selling a Business: Part 1 – The Evaluation.
Once you’ve established your company’s current business enterprise value, you have to ask yourself another question: Is that enough? Most company owners will find that there is plenty of hidden value to be uncovered in their businesses. It is simply a matter of knowing how to build your valuation before the time comes to exit.
Here we discuss six strategies on how to increase value in a company:
Let’s start at the beginning, as recasting financials is a critical part of the valuation process. What does this mean? Put simply, it’s removing or adjusting items on your financial statements that do not relate to ongoing business. These could be as simple as one-time expenses or discretionary costs that new ownership would most likely not expense.
We strongly recommend hiring an M&A professional to dig into your financials and recast these to reflect the true value of your company. Buyers are interested in your business’s future, so don’t get off on the wrong foot by understating your company’s profitability.
It’s not always enough to demonstrate your business has a lot of revenue coming in – it is also how that revenue is coming in. A company that has several active annual contracts for a steady stream of income is more valuable than one that relies on one-off payments or fluctuates depending on the month. Your aim is to demonstrate to buyers that you have a steady stream of revenue coming in that your business can consistently rely on.
Of course, a river is better than a stream, but only if it doesn’t dry up every couple of months!
We’ve now established how buyers prefer revenue to enter your business – now it’s time to focus on the who. Don’t become reliant on a couple of high-value customers as the foundation of your business. This is an immediate red flag for buyers, who will be worried at the effect of losing a key customer down the road would have on your company’s growth.
Plus, having numerous customers strengthens your position, offering you several avenues to increase revenue going forward.
You know how your business works inside out, right? The processes you’ve applied since the day you opened your doors have helped your company grow to where it is today. But, it’s vital that when you exit your business, those processes don’t exit with you.
Document every essential process that has built the foundations of your company. With them, buyers will understand how to maintain your upward trajectory, even if they are strangers to your industry.
Your processes would be nothing without staff to carry them out. So, it is important to identify and train key employees that allow your business to function seamlessly, whether you’re on site or not. The more effectively trained they are, the more valuable they’ll appear and be to prospective buyers.
And when we say loyal, we mean loyal to your company, not to you. A healthy mix of both is the ideal, but a buyer will want to be sure these folks will stick around after the acquisition.
Your intangible assets set your business apart from all others, so you must leverage them to improve its valuation. By their very definition, intangible assets (also known as off-balance sheet assets) are impossible to apply individual values to.
This is because an intangible asset will be worth more to one buyer than another. So, let them do the hard work of determining how much these are worth, and use their conclusions to find the optimal valuation.
And this is really key to understand: Ultimately the actual value of your business is what a willing and informed buyer will pay for it. The business enterprise value that we determine via our evaluation process is simply a snapshot in time and a starting point. Our deal teams are very skilled at finding and negotiating with “optimal” buyers for our clients; buyers that are willing to pay a premium over and above any value we place on a business.
We hope these techniques help you increase the value of your business before you place it on the market. But this is only a starting point. You can discover much more at our complimentary executive conferences, which are held across North America. These powerful insights into the M&A process will explain how you should value a business, what buyers are looking for, and more methods to improve your company’s valuation.
In just a few short hours, you’ll understand how to achieve the optimal return for your business, from the initial evaluation to closing the deal.
For more information, visit our website, or speak directly to our team at Generational Equity at 972-232-1121.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Capital Markets, Inc.’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Capital Markets to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Capital Markets is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Generational Capital Markets, Inc. ("GCM"), member FINRA/SIPC, is wholly owned by Generational Capital, LLC ("GC"). Both GCM and GC are affiliated with Generational Equity, LLC; and all part of the Generational Group of companies. This website is solely for general informational purposes and is not guaranteed by us to be accurate and complete statements of fact and should not be relied on as such. Opinions in this website constitute the current judgment of the author as of the date and its last update. The content of this website does not necessarily reflect the opinions of GCM, and is subject to change without notice, and GCM is not under any obligation to update or keep current any information contained herein. This website does not constitute any personal recommendations and does not take into account the specific investment objectives, financial situation or particular needs of the reader. The information contained in this website should not be construed as an offer, or a solicitation of an offer, to buy or sell any securities or other financial investments. The information presented should not and cannot be viewed as an indicator of future performance. To the extent permitted by law, GCM does not accept any liability arising from the use or retransmission of the information in this website.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.