Three Ways an M&A Advisor Adds Value

A 2016 study asked CEOs who used an investment banker to sell their business whether the investment was worth it. 100% of respondents said it was, with 70% saying that the advisor added significant value. With these benefits, you might think hiring an advisor is the obvious choice. Yet owners want to save money and often the first thing they look to trim is the service of an advisor.

A good advisor can support the sale of your business and add value in at least three ways:

Assessing the Management Team

Blind spots are natural, especially when you’ve built your business from the ground up. You may have knowledge of institutional processes of which your management team are ignorant. You may have team members who are not able to handle the current scale of the business.

Overly involved founders and weak teams are bright red flags. Though most owners understand this risk, most also struggle to spot it in their own business. An advisor offers outside perspective, and the gentle guidance you need to detect these issues.

Optimizing Cash Flow

Years of a specific management style can lead to stagnation. An advisor offers fresh eyes and firsthand experience to help you identify quick cash flow increasers.

Increasing cash flow is simple in some ways. Everyone knows the formula of diversified customers, recurring revenue, and increased productivity. Yet many business owners are blind to methods that can help them do this in their own enterprises. You might need to make tough decisions and break out of comfortable routines. An advisor helps you weigh the risks and rewards of maximizing cash flow, so you can swiftly and diplomatically execute change.

Organizing Your Financials

Every business needs financial foresight. Does the owner have the necessary information to demonstrate performance? Owners need to look at businesses as potential investments for buyers. This is the only way to fairly judge a business’s worth. By viewing the business through a different lens, you may begin detecting problems that were not previously identified.

You must also think about the story you’ll tell potential buyers. You must demonstrate the key drivers of profits and present a forward-looking approach based on those drivers. Data-driven forecasting reassures buyers. It can also encourage them to spend more by demonstrating that a business has real, and potentially increasing, value.

In most sales, an important figure buyers will evaluate is trailing twelve month EBITDA. This means the business must be in excellent shape at least a year prior to the sale. Nurturing a strong management team, increasing cash flow, reducing dependencies, and cleaning up financials take time. It’s time well spent.

If you are contemplating an exit and need an advisor—as most sellers do—you need to get started early. Three years before the deal is deal. Two years may still be ok, but the more time you have, the more opportunities you have to grow value.

Prior to purchasing IBEX, Chuck Harvey spent 35 years as CEO, CFO and consultant to the Fortune 500, Middle Market, Mainstreet and in the Start-up community, including spending time at PepsiCo & Price Waterhouse Coopers. During that time, Chuck oversaw three dozen buy-side / sell-side transactions on three continents, including a $35M sale of a Texas digital photography pioneer to a $1 Billion Japanese conglomerate.

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