[Editor's Note - We published the below article in October - in anticipation of what many were forecasting to be a banner year for busness transactions in 2025.
Now that we are in January, we are beginning to see the dynamics line up. Interest rates continue to fall, the overall economy is strong, there is much capital on the sidelines, and there is much pent-up demand for business acquisitions. Strategic Buyers and private equity firms are just beginning to gear up their corporate development efforts for the new year.
If you are contemplating an exit from your business in the next few years, now may be the best time in several years to tee things up. – Dave Mead]
Don’t miss the opportunity to sell during the next selling cycle
The exit sales process may take longer than you think. There are record levels of capital, sitting as dry powder, and interest rates have continued to come down. Many professionals believe the next major sales cycle will begin during this year in 2025 and extend through 2026.
While some business owners may believe they can pull the string when they are ready to sell, the truth is, for many business owners, the exit sales cycle may take several years to execute. In order to sell at highest value, the process includes time to get ready, 1 year for the transaction, and then you may have to spend 3 years or more with the company after the sale.
Much of the preparation can be accomplished in advance. Companies can focus on making fundamental improvements to their business that will help them be healthier and more prepared than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes and conduct a pre-due diligence process
4. Develop a strategic growth and execution plan
Focus on customer net profitability. The tendency during a downturn is to cling to any customers and revenue no matter the profitability level. A common comment is that “at least they absorb overhead.” The notion of unprofitable business absorbing overhead may be one of the greatest false beliefs in business. In many cases, overhead that has been viewed as fixed is really a cost that can be minimized or shed. Carrying unprofitable business will be a continuing cash drain that may inhibit your business’ ability to continue to grow. Additionally, removing unprofitable business adds to your EBITDA.
Upgrade management. While velocity is slow in the labor market today, there is a great supply of good talent stuck in their current companies. In many cases this may be talent that would not be available in better times. Take advantage of the opportunity to improve. Similarly, this is a great opportunity to review all of your employees and weed out those with below average performance, poor potential, or unrealized potential. Our clients use a simple tool to rank all employees in terms of potential and performance – the results make it very clear which ones have been a drag on the company.
Cleanup business processes. During boom times, some companies claim they are too busy to scrutinize business processes, to make improvements, and to streamline work flow in order to increase throughput. That “excuse” leads to suboptimal performance. Review potential due diligence items to clen up issues in advance.
Develop a strategic growth and execution plan. You need a plan that will allow you to be agile enough to take advantage of opportunities and will be attractive to a prospective buyer.
Take a lesson from the Boy Scouts: Be prepared. These steps can add value to your business. Your business can accelerate faster and be well- positioned. The market for selling a business will be ripe as we move into 2025 and 2026. Those businesses that are ready will find a hungry group of buyers and investors who have been sitting on their hands during 2023 and 2024.
____________________
No comments:
Post a Comment