Two scenarios come readily to mind:

1. Out of the blue, you get that ’knock on the door’. Someone wants to buy your business. You didn’t contemplate this, the business is far from ready, your structures are all wrong, you don’t know what you are meant to say and the opportunity evaporates rapidly. Or…
2. Everything is running well. And the owner gets sick. Very sick. Like a heart attack or stroke. Or worse. This is Unplanned Succession and is rarely contemplated and considered before it happens. Without the owner at the helm, who runs it, what should be done with it, how do you sell it, how do you get the best price?

These scenarios (and there are many more) are examples of situations where a much better outcome would be possible had the owner previously undertaken their own Investment Ready Strategy.

The purpose of an Investment Ready Strategy would be to get the business into a position that it could sell for the right price, at a time of the owner’s choosing, should the opportunity (or need) arise.

Key matters for the owner to address are:

• Management & structure
• Accountability & reporting
• Profitability & margins
• Identification & preservation of competitive advantage
• Dependence on the business owner & other key people
• Systems, procedures, policies & practices review
• Corporate structures and taxation issues
• Various other housekeeping and problem elements

In our experience, properly facilitated, the process to address these elements and to bring them together into a strategy takes about one month. Usually better when driven by an objective person rather than the owner themselves.

And the benefits of executing such a plan reach far beyond the obvious:

1. The business itself is going to be better and more professionally run. Things like; independent governance, regular strategic planning, budgeting and managing to KPIs and exception and examples of outcomes form the process.
2. The business owner must pass control progressively to others. Any new owner needs to believe that the old owner is no longer instrumental to the future prosperity of the business.
3. The focus on effective marketing strategies, sales performance and margins inevitably helps deliver substantially better EBITDA. We have seen owners actually get excited at how well they can do.
4. By encapsulating those things that encompass the essence of the business; competitive advantage, the way things are done, culture and the personality of the organisation, it is possible to build and lock in those drivers of future success.
5. Not only do these steps help build EBITDA but also the multiple which underpins the basis for a valuation. It’s the double whammy.

For example, the business may have previously had an EBITDA of $300k and a multiple of 2.5 (hence technical value of say $750k) but after implementing a strategy, delivers $900k EBITDA with a 4.5 times multiple and hence value of $4.05m. Profit went up three times but value went up four and a half times.

Of course, the whole idea of being Investment Ready is to provide more (and better) future exit options for the owner. But clearly, there are other huge benefits in getting this plan in place early.

We have seen this done time and time again. We have probably facilitated over 500 similar plans. The ultimate outcomes may vary widely but the owners’ smiles are always the same.

The hardest part is the decision to do it!

Chris Alp

Business Specialist Partner