Valuation strategy

Valuation strategy to sell a company at the best price

It is estimated that only 20 to 35% of contractors manage to sell their business successfully, and as the boss delay the announcement of their retirement and therefore do not plan enough for their succession, it is important to do the proper preparations and to plan next steps involved in succession or the sale of the firm. Among these steps, there is one which is often overlooked: preparation of the firm for sale, more commonly called « business staging ». And this applies whatever the size of the firm.

For the owner of a SME (Small- or Medium-Sized Enterprise), failure in the transmission of the firm can have major negative financial consequences which can affect his standard of living, retirement or any other future project. To put all of the chances on his side, an contractor must prepare his firm for possible sale. This can be from 12 to 36 months in advance, particularly in the case of a financing restructuring. One must in fact eliminate or minimize the real or perceived risks of an eventual acquirer and thus strengthen the bargaining power.

The various strategies to increase the value take on their importance when financing of the firm is necessary, or quite simply when the head of the firm wishes to sell his enterprise. Whatever the area of activity, an SME in good health will be easier to sell and finance. As several elements must be evaluated while continuing to manage the firm, one cannot wait until the last minute, as noted in the preceding paragraph.

Before selling, it is thus important to make the firm welcoming and attractive for a purchaser. The owner must do an in-depth analysis of the strengths and weaknesses of his firm and attempt to correct problematical situations, to avoid being faced with surprises or disappointments during negotiations. Many elements, both material and subjective, can influence the true value of the firm for sale.

Here are the principal assets to evaluate : 1-human capital:  quality of the personnel, their motivation, their feeling of belonging and their training; 2-the management team and post-transaction availability of the vendor: concentration of decisions or shared responsibility; 3-clientele and tools to measure its satisfaction with the firm; 4-financial structure and measures of performance in the sector of activity: level of financial independence, debt ratio, management of excess assets, use of operational buildings, rotation of inventory, accounts receivable; 5-process of continuous improvement: impact on rate of productivity and on improvement of margins; 6-capacity to anticipate demand,  proximity and listening to clients, development of competitive advantages; 7-physical appearance of premises of the firm: cleanliness, lighting, state of the furniture, reception area, orderliness of the offices; 8-review of the sales and marketing action plan: perception of products and services in the marketplace.

The strategic valuation provides the value of the firm, and it facilitates the decision of the bank to finance the operation and the decision of the buyer by assuring him of the observable ongoing viability of the firm.

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*The terminology « Business Staging® » is a registered trade mark of the firm Fasken Martineau. 

Sources : Denis Karpicek, MBA, post-MBA (Groupe Transacq) and Boris Myschkowski (Groupe Conseil Riocap inc. )