As 2020 moves into the rear-view mirror we are looking forward to 2021 through an optimistic lens.
Looking back this year our clients were successful preserving the value of their businesses by taking specific steps to manage the crisis, and many of them were able to unlock potential for new growth.
Those businesses that had great teams who were proactive in their response to the pandemic and can demonstrate reliable and/or recurring revenue will be rewarded next year when they go to market.
The Merger and Acquisition world is active and according to a recent survey conducted by Lincoln International, 88% of private equity investors indicated their most important objective for 2021 is deploying capital.
Are you ready to exit? Here are 3 big questions that will assess how well positioned your business is to sell:
1. Do you have a strong Management Team?
Those businesses that did well this year had solid management teams that were able to navigate the crisis. They had their thumb on every aspect of the business, created contingency plans for a multitude of threats, and activated the plans with confidence. This year tested our client’s management teams’ agility and ability to execute plans to protect the cash flow and value of the business like never before.
The quality of your employees is a top driver of the value of your business. In the tech world deals are sometimes done solely for the talent – acqui-hiring. Buyers will always consider exceptional employees a coveted asset. With strong talent and depth in your organizational chart, the likelihood of a successful sale of your business increases.
2. How reliable is the Future Cash Flow of your business?
Investors buy businesses for a future predictable revenue stream in which they can receive a return on investment. Revenue that is recurring, such as documented contracts, takes risk off the table for a buyer, which in turn increases the selling price of a business.
The character of your revenue stream and the potential for future growth is the foundation of the value of your business. Strong pro-forma financials that indicate future growth and are well supported will move a deal to close quickly.
3. Is your Industry Expanding or Contracting?
The valuation of a business requires quantitative and qualitative analyses. The qualitative evaluation is driven by a SWOT – the identification of Strengths, Weaknesses (which are internal to your business) and Opportunities and Threats (which are external to your business).
Whether your business is in a pandemic-resistant industry positioned for expansion, or is contracting, will continue to be a key consideration in marketability.