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November 5, 2019

Be Prepared When Spinning the Exit Wheel

The process of selling a business can be a lot like spinning the Wheel of Fortune, with the pointer stopping in sections named “6x EBITDA,” “11x EBITDA,” “Diligence Issues,” “Recession” and “Leadership Gaps”; the latter of these serving as the sell-side equivalent of “Lose a Turn.” Or, it can be a structured exercise in preparation, transaction and transition.

We have been seeing an increase in deal activity in recent years as well as a continued rise of purchase multiples this year, and we are hearing from many owners that they are considering spinning the exit wheel. In Wheel of Fortune, buying a few vowels can be the key to winning or losing – same with selling a business. We strongly recommend investing in all of the vowels before sale.

Accountability

Ensure you and your team members remain committed and accountable to the agreed-upon process. It may be tempting for you or members of your management team to short-circuit an established process to reduce the transaction timeline. Rarely will this work in your favor. The process will have been structured to support an informed approach to goal setting and transactional activity. Ascertaining market clearing prices, finding the qualified buyer, preparing numbers, engaging the right professionals and communicating with the team are examples of steps that will be mapped out in your process. Team member accountability to these steps and the roles they play will ensure a successful outcome.

Execution

Put an experienced team of legal and financial advisors in place to execute the process. Every sale is unique in some ways yet certain transactional milestones are nearly always present. Diligence is always intense, requiring a team member’s full attention. Preparing for initial and secondary questions expedites diligence to increase a buyer’s confidence in the business. You will want to have the appropriate professionals and resources available on a timely basis to prepare for, manage through and close on the transaction. Bottom line – there will be fits and starts in the process. Experts around the table who are used to the process will coach and counsel the seller and their families and guide execution.

Identify

Identify and address all accounting and business issues for higher EBITDA and multiples. Many business owners prepare financial statements primarily for tax purposes, not for business sale purposes. Financials should be recast so that prospective buyers have a good view of the company’s earning capabilities. Taking the time to identify and properly present a company’s earnings power can have a substantial impact on how the buyers view the business and evaluate the company.

Ownership

Each team member should have a clear understanding of the process and desired outcomes and own his or her role in that process. Confirm that your partners, shareholders and management are on the same page. All parties to the transaction should have one story.

Understanding

Conduct group conferences and individual conversations to foster your team’s understanding of transition planning, liquidity processes and the ins and outs of deal procedures. Communicate expectations for access and availability of transaction documentation throughout the process. Ensure you have an understanding of your team’s questions and concerns, if any, and respond in a timely manner. Confirm periodically that you and your team have a mutual understanding of the process and goal of the sale.

In the world of manufacturing and distribution, many founders and executives have an engineering, technical or operational upbringing and perspective. In a sale, the financial lens will be front and center in the view that a buyer will have about your business. As we close on 2019 and enter 2020, “vowels” can help to ensure 20/20 vision to close a deal in the new year.

Related Resource

Your Team

CBIZ CMF’s cross-functional team of financial professionals helps middle-market business owners prepare for and manage transactions by delivering the right resources for each particular situation. If you are considering a sale or other transactions, don’t hesitate to connect with CBIZ CMF or contact Clare Yuritch at (267) 746-1941 or cyuritch@cbizcmf.com.

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