Part 2 of the Selling Your Business Series sponsored by Schwartz Heslin Group. Part 2 presents a short introduction to company valuations, why this matters, and how to maximize the value of your company in advance of a sale.

1. SELLING YOUR
BUSINESS:
Part 2: What is your business
worth?
Presentation Series by Schwartz
Heslin Group, INC. (SHG)

2. The SYB Series
 Part 1: Introduction and First Steps
 Part 2: What is Your Company Worth
 Part 3: Preparing for a Sale
 Part 4: Your Role in the Transaction

3. You have established your goal
to sell your business. Now
what?

4. What Buyers Look For First
 Sustainable growth
 Strong and predictable cash flow
 Opportunities for growth
 Stable sales
 EBITDA
 NOT Asset Value

5. What Buyers Look For (2)
 Strong revenue growth
 Proprietary Product/Service
 Long-term customer relationships
 Succinct customer database
A CRM is a highly recommended
 Low customer concentration
 Low vendor concentration

6. What Buyers Look For (3)
 Barriers to entry
 The higher the barriers, the more value add
 Established sales channels
 Established and efficient procedures
 The business should be able to operate perfectly
normally in your absence
 Well-maintained capital equipment
 Up-to-date technology

7. Buyers Don’t Want to See…
 Unreliable financial information
 This includes inaccurate and/or poorly prepared
records and financial statements
 Having audited financial statements is
recommended
 Business dependence on owner
 An owner-dependent business may fall apart if
sold
 High vendor concentration
 High customer concentration

8. Buyers Don’t Want to See (2)
 Short-term ownership
 Your long-term commitment in the past signals
that the enterprise is a worthwhile investment
 Lack of financing
 Tax rate uncertainty
 Somethingto keep in mind as the United States
moves toward increasing the capital gains tax
 Acute vulnerability to economic cycles

9. Valuation Methods
 Market Approach
 Prospective deal directly compared to similar
done deals
 Income Approach
 Either DCF or capitalization of earnings method
 Asset Approach
 Adjusts book value of assets and liabilities to
reflect true economic value
 Establishes baseline value excluding
considerations of future profitability

10. Market Approach: Benchmarks
 Comparison of your company to peers
 Key revenue drivers
 Primary expenses
 Key operating metrics
 Risks
 Etc.

11. Implications to Think About
 Market Approach
 Why does your company deserve to be valued at
higher multiples compared to peers?
 Income Approach
 Maximize value by maximizing cash
flow, income, and revenues in the years prior to
sale
 Asset Approach
 Maximize value with a strong, up-to-date asset
pool

12. Common Challenges to
Valuation
 Unreported or underreported income
 Owners stubbornly focused on an arbitrary
specific price
 Unavailable or poorly compiled financial
statements
 When available, they are rarely audited

13. Try to Maximize Value
 Report ALL revenue
 Focus on increasing sales
 Keep thorough and accurate financial records
 Raise the public profile of your business
 Implement an aggressive marketing strategy
 Streamline operations
 Jettison
unproductive assets, workers, and
procedures

14. The Essential Best Practices
 Be friendly and easy to work with
 Make it EASY for a potential buyer
 Provide requested information about your
business
 DO NOT be stubbornly focused on an arbitrarily
set price
 Streamline your operations
 Maximize sales and profitability

15. Next in the SYB Series:
 Part 3: Preparing for a Sale