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Grooming your Business to be Acquired – Part 3

by on July 24, 2013

FocusIn Part 1 of the series I answered the question, “So What is Grooming ?”  In summary, it is preparation to enable you, as the Founder, CEO, an Investor, or part of the Executive Management team, to take advantage of the Right Deal to come your way, with the eventual sale of the business done quicker and at a higher valuation than would have been the case without Grooming.

In Part 2 of the series we discussed the first of three common stages of the Grooming Process: WHEN to begin.  Generally that is NOW and it essentially entails completing an initial business diagnostic.

In this post, Part 3, I  will address WHAT specific steps to take to properly groom your business for a successful exit.

In Part 4 I will address HOW to implement the Grooming Plan.

What to do to prepare the business for an Exit?

Bottom line, you and your executive team, with buy-in from any major investor, will agree on a list of achievable items to be completed in the desired time frame that will put it in a position to reach the valuation objective in a sale.

So what is on that list?  You can create a very long list but you have to focus on Value Drivers!

  1. Focus on growing revenues and profits.  Growth fuels valuation.  If you’re not growing, figure out why and what you can do to change that result in 2-3 years.  Can you grow faster?  What is needed to accelerate your growth?  Is there an acquisition to be made that can accelerate your growth and either fill a gap or extend the sales channel?
  2. Focus on controlling business operations.  Growth needs to be managed with cost constraints.  Can you offload some production cost through outsourcing.  Can you partner with someone to extend the sales channel?  How can you create high growth for the company with the least amount of money?
  3. Land and highlight those “Blue Ribbon” customers.  Names people will know, opportunities to extend your relationship through cross-sell and upsell opportunities.  Demonstrate the land & expand relationship with your customers.
  4. Focus on making your offering marketable going forward.  Look at the trends in the industry.  Right now it is all about cloud and mobile enabled.  How are you impacted by these trends?  If you’re already addressing the fundamentals, what are you doing to prepare the business for the next trend?
  5. Focus the technology roadmap on creating new and innovative offerings.  How can you do what you do differently and easier for the customer?
  6. Focus on building your brand image.  Right now that has to be done in social media.  Do you have a social media strategy?  Are you managing your social brand?
  7. Focus on creating a management team that can grow with the business.  Look for talent that can do what needs to be done as you grow, not just on doing what you’ve been doing.
  8. And finally, make sure your house is in order, that you’ve got proper documentation and your financials are audited.

Common Issues to Address when Grooming

So you’ve created your list and your focusing on the value drivers.  What issues or problems will you encounter as you’re grooming?

  1. As part of this process you will have to crystallize your vision and strategic direction.  This requires a strong leadership team.  Do you have the right people in the right positions to enable the company to reach its valuation target?
  2. Related to that you may find that your management team is not working together.  Disagreements are fine in the strategy creation process but once a direction has been determined EVERYONE needs to be working together on a clear plan of action.
  3. And from that clear plan of action each team member needs to be held accountable for delivering their objectives.  This needs to be measurable and quantifiable.
  4. The result should be an increase in revenue growth, but this can’t come without bottom line benefits.  You must ensure that the company is properly structured to allow for revenue growth to exceed the growth in expenses.  The company doesn’t need to be profitable but its costs need to be optimized.
  5. A good way to optimize costs is to leverage the Super Temp market.  Hire someone with a specialized skill that you don’t have to hire on a full time basis.  You can generally attract better talent that way at less the cost.
  6. And make sure the sales message is clear.  Validate the market value for the price point.  It may be that you’re charging too little but make sure the message is in line with perceived value.

Future Prospects of the CompanyGrowth Uplift

When exiting a business it is always important to sell the potential, so that the acquirer can see continued growth once it has control of the business.

An important part of the Exit Strategy, therefore, is to identify immediate and medium term prospects that will benefit the acquirer.

  • Specifically the growth in revenues
  • New product ranges, whether developed organically or acquired
  • Expansion into new geographies
  • Maybe there is a new legislation that will benefit the product.

Whatever it is it’s important to have some demonstrable support for these claims and they need to be part of the Grooming Strategy.

The Grooming for Exit Series

Please look for the rest of the Grooming for Exit series.

  • In Part 1 I discussed What is Grooming
  • In Part 2 I addressed When to Begin the grooming process and why
  • And finally, in Part 4, I will address How to Implement the Grooming Phase

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn How to Quickly Increase Your Valuation – A Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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