Tired of Feeling Regret?

4 Steps You Can Act Upon Now

In the past few months, we’ve heard all the sad expressions. You know the ones – the shoulda, coulda, woulda…followed with a, “if I had just…pulled the trigger, moved faster, been more decisive.”

This is the ballad of regret – a powerful elegy sung to us on a daily basis by business owners who have been sidetracked by Covid.

This pandemic has crippled business owners with an enormous burden of stress and uncertainty.  But we’re starting to see some promising financial news: The latest US Labor Department Jobs Report shows that the unemployment rate fell to 11.1%. It seems that despite increased testing causing a surge of cases in some states, we are learning to live with this virus and the economy largely remains open.

There’s also good news for essential businesses, such has HVAC, plumbing, fire life safety, e-learning, etc.  If you are planning to exit your business in the near future and have recurring revenue and growth potential, there still is 1.5 trillion investment dollars available to get deals done.

In short, we are still busy guiding our clients through their big liquidity event.

While this is encouraging for the essential business sector, what do you do if your business is in an industry that has been hit hard, your revenue has plunged and regret is creeping in?

The first step is to remember, as my grandmother would say, that “this too shall pass.” The truth is it will and you will eventually exit your business. The next step toward refocusing on the growth and a future liquidity event for your business is to delineate what can and cannot be controlled. How successful you are in selling your business will largely depend on your choices in two critical areas – 1) how you react to this crisis and 2) the team you choose to help you.

Your goal for the immediate future is to control what can be controlled, be proactive, and take action to ensure you thrive in a market where others are just focused on surviving. 

Sound impossible? Here’s how:

  1. Understand your cash flow (email me for help) and run a sensitivity check. If a key driver, ie a customer or supplier, were to disappear what would the impact be to your profitability? Don’t wait for a problem. Proactively identify any compliance issues with bank covenants, customer or supplier contracts and correct them now.
  1. Strategize and execute a plan to reduce costs. This ride might be bumpy for a while so it’s important to conserve as much cash as possible. Eliminate any discretionary expenditures, identify and monetize excess assets or inventory, defer payments (which might mean talking to your landlord), and ration employees if necessary.
  1. Go back to your core. Analyze all of your business segments and shrink where necessary. If you need a break-even analysis email me.
  1. Create a strategic plan for growth. Remember your end game. It’s never too early to prepare for your exit now so you can create a better tomorrow.

These are the key drivers we assess when establishing the readiness of a business to go to market.

Will You Exceed Your Buyer’s Standards in These 7 Key Areas?

  1. Strategic Planning/Business Architect: When a buyer is considering investing in a business, a strategic plan to scale so that the business can be expanded easily without a major capital outlay is vital. Buyers want assurance that the business can grow and increase in revenue resulting in a corresponding increase in profit margin which will meet their target ROI.
    A buyer will evaluate the current business plan, how well defined the target market is and the potential for growth, plus whether your business can easily accommodate the growth. The strategic plan should be supported by tactics to support the goals and tied to clear key performance indicators.
  2. Management Team / Human Capital: Cultivating a well-developed management team assures an investor that the business is not owner dependent. Their success depends on your business’s viability without you as the owner.  Human capital is one of your most valuable intangible assets. Whether your exit strategy is to transfer ownership to a third party via a sale or engage in a family succession, the quality and depth of your team is vital to meeting your exit goals. Leaders that understand the vision and have the skills to lead the execution of the plan will bring incredible value to your business.
    In addition to current management, many business owners have learned from unexpected events like Covid-19 that having a succession plan for key roles is an important component of your management team contingency plan. Agility in the face of a disruption always centers on the ability of the management team to recover from shocks. 
  3. Sales: What motivates an investor to buy a business? Future predictable revenue in which they can receive a return on their investment. I’ve said that phrase so many times it has become a mantra.
    Showing an investor that the business is able to fund future growth through current cash flow will go a long way in proving value to a buyer. This requires striking the right balance between growth and capital.  If you’re mindful of your growth rate and utilize your working capital efficiently, you’ll avoid causing two major concerns that a buyer may have. 1. That they will need to heavily invest in realizing growth potential. 2. That excess reserves may represent under- utilized capital that could be used to support growth. Your working capital measures the company’s operational efficiency and short-term health, while growth proves longevity and value.
  4. Marketing:  A robust marketing plan that presents the strategy to grow sales gives an investor confidence in future growth and potential return on his investment. 50% of the small to middle market have no marketing plan.[1] Too often a business owner’s marketing is ad-hoc at best and that will not add value to your business.
  5. Operations: An investor’s review of operations will be contingent on the industry the business is operating within. Manufacturing, retail, and service are all assessed with varying parameters.
    Manufacturing analysis will focus upon production efficiencies and whether a business is operating under lean principles. In retail, an investor will focus on movement of inventory. The service industry operations include a front end that delivers the service to the customers and the back end that produces the product.
    Irrespective of industry every business needs a written operational strategy with specific tactics to support the execution with the right team members.
  6. Finance: The finance team adds tremendous value if properly staffed and leveraged. The accounting department has the reputation for being immersed only in historical data ensuring proper reporting and compliance, cutting costs, etc. however, they are not just transaction oriented. A well-developed finance team understands the entire financial picture of an organization and are key players in developing strategy to grow a business. They proactively manage the need to secure capital for growth, oversee risk management, advocate for new technology to streamline operations, and ensure efficiencies across departments through process improvements.
  7. Legal: People often laugh when we ask them if they have ever been convicted of a felony but legal history is no laughing matter when selling your company. The investor will want to know if you have any negative history with the law. They also will want to be aware of any threatened or pending litigation and the potential outcome. Beyond keeping your business current with all filings and licenses, a good legal team will have your contracts and agreements buttoned up and have any intellectual property protected. 

[1] Outbound Engine 2019 study.

Keep reading:

An Exit Strategy is Good Business Strategy – Why You Need a Plan Today!

An exit plan aligns an owner’s business, financial, and personal goals and is a living document, so it is continuously revised as the business scales. It serves as a guide for the business owner as they prioritize critical decisions to scale the company. This ensures that as the company grows transferable value is increased and the business will attract investors when they go to market.

Read More »
who will be my buyer?

Who Will Be My Buyer?

There are three types of third party business buyers – financial, strategic and individual – and each brings something different to the table. Which is right for you?

Read More »

Copyright © 2020 Legacy Partners LLP | Exit Planning | Merger & Acquisition Advisors