Get in the (Value) Driver’s Seat

Steps to Selling your Business Part 5.

In previous posts, we have focused on getting into the right mindset to begin selling your business. In doing so, we have warned you to expect a granular inspection of all your numbers. Potential buyers will be looking at reams of data, and it is crucial to prepare for the scale and scope of that undertaking. Today, we will shed light on what is gained in the sale process through the preparation of a straightforward one-page summary of your company.

In-depth, initial conversations with our clients are a necessary part of the job. In the preparation phase, however, there is always a danger of in-depth becoming long-winded. I am a big proponent of a straightforward approach. As such, on the very top of that stack of pages of detailed data, you need to have a one-page business model with things stripped down to their essence. That single sheet is going to highlight what big spreadsheets hide.

At its most basic, your Mergers and Acquisitions (M&A) Advisor should ask: how does this business make money?

For example, consider a business where billings are based on hours. For that billable hour, their company might pay their staff $60 and bill their clients $200 an hour. Since billable hours are the company’s primary profit generators, it is reasonably simple to describe the business model in a one-page summary:

Billable Hours50,000 hrs
Average Rate$200/hr
Total Revenue$10,000,000
Direct Costs
Billable Hours50,000 hrs
Recovery Rate80%
Staff Hours62,500 hrs
Average Cost$60/hr
Total Direct Cost$3,750,000

A snapshot of your business does a lot for you. First, it allows you, along with other stakeholders, to pinpoint what is currently working and where obvious fixes are needed. More importantly, it highlights what components of your business are scalable. Once you identify these, your M&A Advisor will begin to work with them, creating an analysis and projection on future performance and the cost structures as the company scales up, which will have a measurable impact on your profitability and sale outcome.

The key is to identify scalable value drivers. 

An expert M&A Advisor will help you identify your company’s value drivers and guide you on positioning your company to prospective buyers. Stillwater leveraged this several years ago when working with a transportation management company:

Our client thought they were a trucking company. It’s how they talked about themselves internally and to their customer base: ‘We’re a trucking company, we’ve always been a trucking company.’ When we completed our in-depth review with management, we showed them that they were a transportation management company that happened to have a fleet of trucks. 

As our team spent time with our client’s management team, getting to know their business and helping them boil it down to its essential components, we helped them realize that their service side was easily scalable. Yes, they had a legacy asset in their fleet of trucks; however, their service activities had given them expertise in freight management. The executives weren’t correctly viewing it as the scalable profit opportunity that it was. They had a great, underexploited value driver, which was, most notably, a scalable transportation management business feature. We helped them pivot their focus toward that side of the business, which led them to a growth strategy that we could present as an outstanding strategic opportunity to potential buyers.

This simple approach is a great path to provide you with a clearly delineated growth strategy for your company

Stillwater can help you create your one-page business model, look at what it tells you,  identify the scalable value drivers, and factor those drivers into developing or fine-tuning an implementable growth strategy. 

This exercise is integral to identify whether you should stay in the driver’s seat for the time being or move forward with selling your company.

Committing to strategic growth is a vital part of Stillwater’s business philosophy, and we have applied that to our fundamental praxis. Buyers want to know your business’s potential for growth, even if the strategy has not yet been implemented. The right M&A Advisor will assist you in developing and presenting that growth story with confidence.

If you are planning to divest your business, or have questions for one of our Advisors, please contact our team today.

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Written by: Douglas Nix