RUN YOUR BUSINESS TODAY LIKE YOU’RE SELLING IT TOMORROW
Be prepared for the day when you may want — or need — to make a transaction. BY BRIAN COHEN
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elling your business is a complicated process that brings about a range of emotions. Your company is something you have poured your sweat and tears into, and letting go, or partnering for growth, no matter the price, is always bittersweet. That being said, it makes good sense to be prepared ahead of time for the day when you may want — or need — to make a transaction. Staying proactive and preparing your business for sale before that day comes is paramount to the bottom-line price you will receive. By focusing in on a few important items, you can immensely improve the attractiveness of your business to outside buyers. The idea is to run your business today as if you were going to sell it tomorrow.
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When an owner has created a strong “bench” of key managers who are able to run the operation on their own, it allows the buyer to feel at ease with the transition of the business after the sale. GET YOUR BOOKS IN ORDER Having your financials in order and in accordance with Generally Accepted Accounting Principles (GAAP) should be done well in advance of selling. It allows for consistency when comparing to prior periods and competitors in your industry. This includes making sure that your financial statements are reliable through accurate and timely reporting. We oftentimes see that larger companies, have CFOs handling this role/
responsibility while smaller companies are using a bookkeeper. Whichever way you are handling your financial reporting, you should be working to keep your books in order, it will make your process smoother and easier when you are ready.
UNDERSTAND VALUATIONS Deals in the contracting space are usually done based on the trailing 12-month EBITDA [Earnings Before income, Taxes, Depreciation and Amortization (and add backs!)] times a multiple —
EBITDA x Multiple. The multiple is influenced by a multitude of factors including the size of the business, the market in which it operates, its service contract base and its key management team. Multiples have been on the rise in the last several years and we are now seeing companies that would have been paid 5x for the business several years ago are now receiving offers at 7x. Over the course of the last year, we have seen larger businesses sell for double digit multiples. We always recommend to contractors that they should know what their business is worth and check into that valuation on a yearly basis. While this may look time consuming continued on page 10
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