The Seven Most Important Actions that Increase Value

It goes without saying that the rosier a company's financial picture is, the more attractive it will be when the time arrives for the owner to sell the business. That is why building business value must become job No. 1 for owners, stockholders and their managers in anticipation of a sale.

Building value is a process that Paul Reilly and I recently addressed in a New Direction Partners webinar for Printing Impressions and packagePRINTING. We outlined a seven-step approach that owners should consider to maximize returns on the investments of personal wealth that they have accumulated in their companies over the years. To summarize it here:

1. Get your EBITDA up! EBITDA (earnings before interest, tax, depreciation, and amortization) is the multiplier that often determines how much money you will walk away with at the conclusion of the sale. Simply put, higher profits may contribute to higher EBITDA multiples. You want your business to be in what we call the “super profit” category.
2. Clean up your balance sheet. Interest-bearing debt, aged receivables, stale inventory—make a plan to eliminate or substantially reduce all of it. Hire an accountant to prepare a reviewed or an audited statement for buyers and banks to examine.
3. Grow the top line. Do it by having superior sales and marketing functions in place. In the webinar, we explain what we mean by “superior” performance and its correlation with growth rates.
4. Control costs. Shops with a true “value attitude” control costs in order to achieve maximum value added per dollars of payroll. These metrics are highly predictive of profits—and of desirability to buyers.
5. Create a “profit” corporate culture. This is largely about cultivating a personal leadership style that inspires and energizes everyone else in the company. A culture of this kind challenges the status quo and motivates and rewards better practices.
6. Time the sale process. There are periods in which to proceed, and periods in which to hold off. Knowing how to tell whether the light is green or red is crucial.
7. Hire an investment banker. A qualified M&A adviser can help you understand timing and all other aspects of the selling cycle. Studies confirm that selling stockholders who rely on experienced investment bankers achieve higher prices than those who don't.

If you weren't able to attend the webinar when it was first broadcast and would like a detailed look into the “seven actions,” no worries—it will be archived at this link until Feb. 4, 2016. Please review our presentation, and please don't hesitate to contact us at New Direction Partners if there is anything you’d like to discuss about increasing value at your business or any other M&A-related subject.