For EXIT

Will Your EBITDA and its Sustainability Attract the Capital You Are Seeking?
How Well Does Your Company Run Without You?

The Biggest Paycheck of Your Life

The sale of a business usually represents the largest paycheck in the life of a business owner.

It should be. It will sustain you for the rest of your life.

A Stark Reality

Among the more incredible realities facing business owners today, however, is the fact that, as the last of the Baby Boomers retire, the number of privately-held businesses sold annually in the US will increase over 15-fold.

On average, 23,776 such businesses have been sold annually over the past 30 years. That number will increase to an average of 378,000 per year through 2029.

This massive influx of supply will create a buyer’s market and all but commoditize the value of businesses that are not operating at peak profitability.

Critical Considerations

While sales volume is important, the primary determinant of the value of a business is a multiple of its EBITDA.

Thus, if you contemplate someday selling your company, it is critical to plan ahead and start taking the steps necessary to ensure that your company is operating at optimal profitability on a sustainable basis AND that you are not integral to the profitability in order to ensure the maximum valuation for your company.

At the time of sale, and even at any point in which a capital raise is involved, investors, lenders or prospective buyers will focus on four critical factors to determine the value of your company and their interest in investing, lending or acquiring:

  • Growth in Revenue

    Capital sources will also look at the growth trend. They will want to see how stable any revenue growth has been and will be into the future. They will not want to pay for future potential of course but the valuation will certainly be penalized if the trend has been downward or slowing.

  • EBITDA Margin Growth

    Your EBITDA margin (profit margin) tells the capital source how many dollars of profit will be derived from each dollar increase in revenues. EBITDA can be grown by increasing revenues or increasing the EBITDA margin (decreasing operating expenses – operating more efficiently). Obviously, the higher your EBITDA margin, the greater the value of your company.

  • Multiple of EBITDA

    The primary basis for valuation is EBITDA (earnings before interest, taxes, deductions and allowances) but the real value of your company is the multiple of its EBITDA. That multiple may be four to six times (or more) depending upon the size of your company, the stability of its growth of earnings and the ability of the management team to sustain revenue growth and profitability.

  • Management

     
    How capable is your management team to build profitability without you? If you, as the owner of the company, are integrally involved in day to day operations, your company will have a lower value for a potential capital source. It is critical that you have a strong management team equipped with the knowledge, experience, skills and systems to enable your organization to reach its full potential.

When you sell your company, you could of course, structure an earn-out in which you continue to work for the company for a period of time.

The terms and length of that transition period, however, will be much more favorable to you if have a well-designed business operating strategy that efficiently and effectively holds your management team accountable for profitability so that profitability does not diminish in your absence.

Among the most valuable uses of the Critical Factors Management System is to create sustainable increases in profitability by transferring accountability to the management team.

Our entire systematic process is designed to sustainably increase productivity and profitability for maximum business valuation.

Our Systematic Process

  • Financial Statement Analysis & Forecast

    We start our engagements with an analysis of three years of financial statements and use this information to forecast the next five years based upon the trend in performance over those previous three years. This provides a solid foundation for setting realistic goals based upon historical performance, current company resources and projected cash flows.

  • Strategy Session

    We provide the forecast to ownership and then conduct a meeting with the owners and the senior management team to identify financial and performance drivers (critical factors) that can be better managed to positively impact future performance. This optional 1/2 day strategy session yields a high-level strategy and starts the process of creating alignment to the corporate vision.

  • Develop Fully Customized Management System

    We then conduct a full day planning session with all members of the management team that have responsibility for those financial and performance drivers (critical factors) and establish aggressive but achievable goals for the company based upon the historical analysis. This meeting introduces the Critical Factors Management System and solidifies the process of creating alignment and engagement throughout the organization. Every aspect of the meeting is documented within 5 business days including the performance management system (Critical Factors) that is customized to the unique requirements of each client company.

  • Monthly Performance Monitoring & Course Correction

    We receive a monthly update of financial statements which enables us to provide a rolling forecast including projected cash flows based upon current performance. We conduct a monthly, ½ day meeting with the management team to review performance and implement timely course corrections in order to ensure year end goal achievement. Complete documentation is produced and distributed within 72 hours of each meeting.

  • Year End In-Depth Planning & Budgeting

    We conduct a year-end, in-depth planning session, usually in November or December, during which every financial and productivity driver (critical factor) is analyzed and discussed. We work with the management team to revise the goals of the company for the next five years, develop a comprehensive strategy to achieve the goals (including contingencies for anticipated potential threats) and finalize the financial and performance budgets that will enable the company to achieve the goals for the succeeding year.

  • Monthly Performance Monitoring & Course Correction

    We receive a monthly update of financial statements which enables us to provide a rolling forecast including projected cash flows based upon current performance. We conduct a monthly, ½ day meeting with the management team to review performance and implement timely course corrections in order to ensure year end goal achievement. Complete documentation is produced and distributed within 72 hours of each meeting.

GET STARTEDWITH 5 YEAR FORECAST

So What Makes Us Different?