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4 Ways to Increase Business Valuation and How Investment Bankers Can Help

We heard from a business owner, “I have people calling to buy my business every day, why do I need you to help me sell my business?”  Business owners need the assistance of investment bankers not necessarily to find buyers, but to find the right buyers.  Business owners also need investment bankers to find and create value during the sale of the company.  

Investment Bankers Can Help Business Owners Increase (and Hold) Value

Occasionally we get a business owner who does not want to get the most money for their business, but most owners are looking to maximize value.  When you use an investment banker, value is created and maintained during the sale process in a variety of ways.

1.  Tell the Right Story

If you simply hand over an organizational chart and have buyers look at your website, you are not actively selling your business to maximize value.  One of the most important elements an investment banker  brings to the table is the framing of a business into the form that we know buyers value most.  

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One great example is growth.  We know that private equity’s LBO models are most sensitive to growth.  As a result, when we sell a business we always include a substantial amount of materials on “Growth Opportunities.”  Even if a business owner wouldn’t consider pursuing these at the time, if they are real opportunities, we put them in the materials.  Launching a new product?  Expanding your territory?  Have some great acquisition opportunities?  Put all those into your “Growth” section of the materials.

2.  Find the Right Buyers

I know people approach you all the time about buying your business. But how can you be sure that the people that are approaching you are actually the ones that will pay you the most money?  If you don’t run a professional process and you just respond to buyers that approach you, you will never know.  

An investment banker adds value to the sale process by finding the right buyers for your business.  If they are experienced in the industry, they will bring strategic buyers who need what you have.  Investment bankers may also add financial buyers, or private equity groups that have a specific interest in your type of business.  Either way, they are bringing their knowledge of the buyer universe to your transaction.  

It’s not the number of buyers you have in your transaction, but the quality that is important.  If you have 100 buyers that want a motorcycle parts company but you are a pump manufacturer, you aren’t going to have a very successful process.

3.  Spiff Up Your Financial Statements

When we tell people this, they look at us like we are doing something illegal.  But when you think about your raw financial statements, think about how misleading they can be in terms of indicating true cash flow potential.

  • Do you run any personal expenses through your business?  If yes, let’s take those out.
  • Did you launch a new product that created some one-time marketing expenses? If yes, let’s take that out.
  • Did you have a legal/environmental issue that created some one-time attorney expenses?  If yes, let’s take that out.  

There are a number of these questions that an investment banker will ask a business owner and the financial statements used for the sale will begin to look different than the ones that come right out of QuickBooks.  

4.  Sell When the Market is Hot

This one seems obvious but your investment banker will have a great sense of what the market will offer you for your business.  There are certainly times when the market is red hot, and there are other times when money pulls back and valuations creep down.  In any case, it’s a good idea to see where things are at with your banker before you get an idea of a value in your head.

A big mistake sellers often make is waiting until they are ready to sell versus taking advantage of great market conditions.  We often hear, “I’m going to sell in 2 years because that’s when I want to retire.”  It’s a great thought, but if the market is hot now, you might be better off selling today, investing your proceeds and retiring a bit earlier than you thought.  There is rarely anything a business can do to outgrow falling market valuations, meaning that there is almost never a case to be made to wait if prices are high now. 

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