Over the last 15 years in this industry, the 3 most common questions we are asked by owners of privately owned businesses is:
- What is my business worth?
- What multiple will I get?
- Will someone be interested?
In order to increase the likelihood of a sale and increase the value of the business, we always ask about the management team.
- Who is in your management team
- Are they paid accordingly (market rates)
- Are they a CEO or General Manager
- Are they a CFO or Financial Controller or a Bookkeeper
- What are their incentives
In most privately owned businesses, the owner is the CEO, and they have a capable finance team. However, they can sometimes be reluctant to hire a full management team or don’t want to given the cost to do so. Typically paying a growth CEO $350k plus incentives is seen as a waste of money or simply cost prohibitive.
Nash are strong believers in having the business well positioned and set up for sale in order to maximise sale value, which includes building the depth and quality of the management team before the sale of your business. Here is an illustrative example:
Food Manufacturing Business
EBITDA of $8m
Initial assessment of valuation ~ 5.5x = $44m
Owner seeking to sell to a majority shareholder in the business and wants Nash to provide a number of suggestions to:
- Maximize the sale value of their business
- Ensure there is a very high likelihood of sale
Hire a CEO, CFO and operations team at a cost of ~ $800k per annum (350k, $250k and $200k)
The owner becomes executive chairman and reduces their salary from $250k to $50k (200k saving)
Net increase to wages: $600k
In the above example, it is quite reasonable to assume:
- any buyer will increase their bid by 0.5x multiple due to a better-quality company and management team – buyer can get comfortable during the management meetings during diligence that there is a quality team to grow and take the business forward
- more buyers will be involved in the sale process and therefore, should help in increasing the valuation via competition
- deal certainly will be much higher as the business has been de-risked
In all likelihood, building a team around you in the eyes of any prospective buyer will be highly regarded and increase the chances of a successful outcome. One of the number one reasons businesses don’t sell or even get past the initial assessment from a buyer, is due to the owner being full time in a business and not having a team around them to manage the business and execute on a growth plan.