Over the past several months I have met with numerous CEOs who are contemplating a business transition. Whether they are selling their company this year or in five years, one thing remains very clear – business owners want to be prepared for this event. Whether they manage technology companies, retail businesses, professional service companies or branded manufacturing operations, CEOs want to be ready before going through the selling process.
Business owners want to maximize the value of their companies when their business sells. For most business owners they will only sell a company once in their lifetime. Being prepared allows a CEO to be in control of his/her destiny and to have a sense in advance regarding what their company is worth. As a former CEO, managing a $150m+ consumer products company, I certainly understand this desire to be in control and the value of being prepared. What does this mean for a business owner who knows a transitional event is on the horizon? Simply put, they need to execute the pre-work to identify and remove the risks inherent in their business which would result in a lower price and to increase the strategic capabilities for which acquirers are willing to pay a premium. Said another way, all things being equal, buyers of companies pay more for businesses with fewer risks and more strategic capabilities.
At Destined, we see the value of a company as the profit of the company times a multiple.
Value = Profit X Multiple
While CEOs know how to impact the profit by increasing sales, improving margins or reducing costs, they have had little, if any, training on improving the multiple (M) in the equation above. Working together with the owner and the management team, the Destined “Above the Line/Below the Line” tm framework (shown below) to assess the business today. The assessment details the risks (below the line) that need to be removed from the business and the strategic capabilities (above the line) which can increase the value by increasing the multiple (M).
Furthermore, the assessment shows the value of the company today and the specific projects that will increase the value of the company in the future. These projects eliminate risks and increase strategic capabilities (see below).
Buyers of companies will pay more for a business where risks have been eliminated and strategic capabilities have been strengthened. Are you prepared to transition your business? If not, Destined an help can help.