Your M&A Advisor as Alchemist

Steps to Selling your Business Part 4.

You have decided. It is time to sell your business. You have answered the critical questions: 

  1. Who will advise me on the selling of my business?
  2. Why am I thinking of selling my business?
  3. Why am I thinking of selling now?
  4. What am I going to do next?
  5. What does my spouse think?

You are working with the best M&A Advisor you can find, the one who will support you from start to finish, who will protect you and create exceptional value for you through their wisdom and experience. 

In selling your business, prospective buyers need to understand and agree with the story of your business. They must see the whole picture and understand the details. 

This is where rigorous preparation is essential. Before talking to anyone, you need to know what drives your business and what is in your business that would be valuable to potential buyers.  

If you don’t include these from the start, you will not get credit for them when buyers assess your business’s value. If the buyers are not aware of these value drivers through discussions, they might miss them or assume that you are not aware of them. 

You must ensure that the heavy lifting is done for prospective buyers and that the results of that work are put on the table in plain sight for all to see.

How do you do this? 

Business owners spend their effort meeting the day-to-day demands from running their operations. This makes it difficult for them to see and explain the story of what they have built. It often comes down to not seeing the forest for the trees, and they need help.  

One of the critical roles your M&A Advisor plays is to be the master of your financial numbers and your story.

It is not overstating when I say that your Advisor needs to have an almost supernatural ability to translate the numbers into words, and the words into numbers, with deep understanding. While it might seem too obvious to state this, it never ceases to amaze me how often sellers and their advisors get this wrong.

The success that you have in ensuring this is done well will ultimately determine how well you do on the sale of your business.

Just like any endeavor in life, people who do something well make it look easy; this is also the case with interpreting and narrating your business’s real story. Good advisors make this look easy, and they also can communicate it to you in a way that you agree with and understand. Many of our clients tell us that they fall in love with their business again when we finish “telling them the story” of their business.

Another critical role of your M&A team is transforming raw or ignored elements of your business into highly visible value drivers. This often looks like a kind of alchemy. 

As strange as it sounds, this is where financial analysis, strategy, and insight collide to explode into something exciting and invigorating. This is where the highest level of common sense, years of honing investigative skills, and an innate interest in human beings combine at the highest expression of an M&A Advisor’s craft.

This alchemy must start immediately at the initial phase of selling your business. It is a crucial building block upon which so much of the future work depends. 

The heart of the alchemy is what we call Value Analysis.

Value Analysis centers around the “what is in your business” question.

There are several areas to look at when identifying the things that make your business valuable: areas such as customer relationships, unique processes, distribution channels, specialized knowledge, and employee skill sets, to name a few.  

Every business has value drivers. Many are hiding in plain sight, others, while highly valuable, have no prominence in the business. You will find that having a third party’s eyes looking at your business and asking the what, why, when, how, and why not questions will provide you with a new perspective on what makes your business unique and its value drivers.

I know from personal experience, that some buyers will try to overlook or downplay the value drivers in your business, but don’t let them.

For example, we were engaged to sell a $20 million revenue service company operating in a very competitive market. Early in the discussions, one comment came back to us, “There are really low barriers to entry, and we don’t see any value drivers in this business.” Our deep-dive showed that the company had several incredible value drivers that enabled the company to attract and retain new customers. 

Our response was simply this, “Tomorrow morning, start a company that does the same business. When you have hit $20 million in revenue, come and tell us that there aren’t any value drivers in your company.” It changed the whole tenor of the conversation. 

Our point was simple: the numbers don’t lie. That company had built and maintained its market position, and its impressive value drivers contributed to its success. Our job was to identify those value drivers and bring them to the table.

Every business has its own unique set of value drivers. 

Take a big company—Google or Apple, for example; most often, the answer to the question of ‘what will be very easy to identify: they have a massive technology stack, along with very understandable value drivers that are easy to identify and explain. 

Often, for mid-market privately owned businesses, the value drivers are harder to see because they are masked and are below the surface. Your job in this first phase is to make sure that each of your business’s value drivers are brought into the light.

For one client, their value drivers were market-leading client acquisition and serviceability. For another, it was an organizational ability to automate complex manual tasks; for another, it was a scalable business model. It will be something entirely different for your business but, take heart, when you look for it, it will be there.

Keep in mind, the alchemy doesn’t stop there. Its next crucial element is knowing how to best present these “whats” to prospective buyers so they are understandable, credible, and valuable. 

I know from experience that the ability to do this is a rare skill that is quite valuable to find. That’s why you need the right alchemist on your side.

Sometimes, identifying the “what” in your business requires a lot of work, but we know it is always worth it.

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