When in the midst of an economic downturn, preparing your business for sale may seem like an unideal strategy. For business owners who think a sale may be in the near future, using this time to focus on your company and preparing for the upswing is essential in maximizing your transaction. Doeren Mayhew Capital Advisors offers these four key points to consider when planning to sell your business, even if the timing is not quite right.
1. Streamline Processes to Prepare for Increased Earnings
Think of all the things you wished you had time to do while the team was too busy to get them done. Key areas may include training, implementing new processes or software, or investments in equipment or key personnel. Focus on value drivers that will increase the efficiency and overall value of your business. During 2008’s economic recession, several Doeren Mayhew clients who focused on these key areas were ultimately best prepared to maximize profitability afterward.
2. Diversify Your Business
Diversifying your company and capturing new market share can help grow your business value. While this may seem like strange advice during a downturn, competitors are likely struggling as well and finding areas to cut back, leaving opportunities into a new market for your business.
Consider hiring talent or identifying targets to buy or merge with your business. A downturn can be a great time to diversify by adding salespeople with an emphasis in other markets or products that can be sold to your same customer base. You also may be able to find a competitor that is struggling which could allow for business growth opportunities, such as geographic expansion, customer diversification or client increase.
Just remember that you want this growth to represent the following:
- New products or services that can be sold to your existing customers, or
- Existing products and services that can be sold to new customers in different industries or segments
If you are growing with new products and services to new customers you are effectively starting a second business when you might not have the balance sheet to do so.
3. Focus on the Numbers
Keeping financial records in order is particularly important to maximize value. Whatever financial realities the records reflect, accurate and consistent record-keeping shows both professionalism and competence. During a sale, a buyer wants to see a well-prepared seller. Understand the drivers of your business so you can prepare better forecasts into the future. If a company has a consistent and proven forecasting process, buyers feel better about the future and are willing to pay for that either in the form of an increased multiple or some type of earnout. Sellers are then able to sell sooner rather than later when the market recovers.
4. Cut Costs to Maintain Profitability
The ability to show business profitability despite tough economic conditions makes a buyer more comfortable with the risk. Where possible, make fixed costs variable. Consider all the costs in your business and evaluate options to make them variable with head count or sales. Look back at what your cost structure was when your business used to be this size and still profitable – How was it different? Which job responsibilities did you outsource versus hire a full-time employee? Would some of your employees value part-time options? Costs such as information technology needs may seem fixed, but can actually be structured per user, even to upgrade systems and infrastructure.
Rely on the investment bankers and M&A advisors of Doeren Mayhew Capital Advisors to assist your business in finding its strengths and leveraging them to maximize proceeds from a sale. For more information, contact our investment banking team today.
