Business Advice

The Importance of Seeing Your Business Through a Buyer’s Eyes

April 14, 2021 By Dr John Binkley - Generational Equity

When you think about your business, how would you describe it? Your job? Your passion? Your life’s calling?

There is no wrong answer here. But one word that often escapes entrepreneurs when describing their company is “investment”. This is crucial, because those that are able to make this association often find themselves in a much stronger position to maximize the potential of their exit plans.

Why is this?

Because those who see their business as an investment are seeing it from the same perspective as a potential buyer. They are looking at its capacity for future growth. To increase revenue. To secure greater market share.

Seeing your business through the eyes of a buyer puts you in a strong position to understand and correct any concerns that they might have about the prospects of your company, and to pinpoint the key intangible assets that would capture their imagination and encourage them to pay a premium for your company.

But what if you don’t have this perspective?

Then, at least in my experience, you will be in a similar boat as many other entrepreneurs; business owners that are often too preoccupied with the daily operations of their company to take that step back and look at their company from a buyer’s perspective.

Furthermore, I have found that most business owners tend to err in one of two directions when they attempt to look at their company objectively:

They are overly critical of their company’s shortcomings to the point that they obscure the positives.
They are overly optimistic about their business’s prospects and processes to notice any areas needing improvement.

Both of these can be problematic for attempts to maximize the value of your exit strategy, but it is the latter of the two that is more common among entrepreneurs. This perspective not only clouds their minds from making changes that could improve their worth to buyers, but it may also mean they mistake potential red flags as major selling points.

For example, let’s say that your company has four customers that account for 50% of your overall revenue. To a business owner, this might be viewed as a positive for several reasons:

It shows your company has built strong, lasting relationships, a sure sign of its good reputation
It shows your company treats its customers well so they will continue to use your products and services
It shows that your products and services are of great quality

However, a professional buyer will not necessarily look at these the same way. Instead, when they see that 50% of your revenue is tied to four customers, their big questions will probably be:

“What will happen if those four customers disappear when the business enters new ownership? What if the relationships with these key clients are completely tied to the current owner?”

Where an owner sees benefits, a buyer might see risk. Similarly, you might see it as a big bonus that your experience and industry knowledge has guided your company to new heights, and has helped establish you as a leader in your field.

But, unless you are planning to stay with the company post-acquisition in some form of earnout agreement or similar deal, the buyers won’t be acquiring you when they purchase your business. So instead of being impressed by your expertise and how dependent your company is on that to thrive, they will ask questions like:

Do you have a middle management team?
Who is in a position to take over from you upon your departure?
Do key clients/customers know anyone outside of the owner?
Who is more important to the brand – the owner or the business itself?

Owner dependence and customer concentration are two of the biggest red flags for prospective buyers because, fundamentally, their objective is to acquire targets that present the biggest opportunities with the lowest degree of risk.

Giving buyers what they want

So, how can you gain this insight into what professional buyers are seeking in companies like yours? As most entrepreneurs will only exit one business across their lifetime, this is not something you can afford to pick up on the fly…

The best approach is reaching out to an experienced M&A advisory firm like Generational Group. Because of their extensive knowledge of the factors that influence both buyers and sellers over the course of a transaction, their expertise will be incredibly helpful in gaining an insight into the intangible assets of your company, and the areas that buyers may be concerned about.

Plus, firms like Generational provide a truly objective perspective. Now as one of our former clients, Warren Peck of Phoenix Rising Aviation, once rightly claimed:

“No one likes to be told that their baby is ugly.”

The same can be said of most business owners towards their company. But, as I highlighted earlier, this attitude can cause you to miss vital areas of improvement which, if not addressed, can limit any potential offer from a professional buyer.

That is why the independent, honest perspective of a reliable M&A advisor is like a spoonful of medicine – it might not feel great to swallow, but once you do, you’d be surprised at how quickly things start to improve!

As a general rule to get you started, addressing the following key risk areas will help you make great strides in bridging the valuation gap between your expectations and the buyer reality:

Reducing owner dependence
Improving customer diversity
Enhancing profitability
Augmenting sales and marketing teams and processes
Restricting customer and supplier churn
Documenting key internal procedures and policies
Making sure your financials are accurate and in order

The good news is that most of these can be addressed starting today, and by doing so, can make a substantial difference to your exit prospects.

But, an M&A advisor’s job is not only guiding you in areas needing improvement – it’s also to highlight aspects of your business that will help you stand out from the crowd of acquisition targets and capture the imagination of particular buyers.

I’m again referring to your company’s intangible assets. These are components that you might currently take for granted as part of your daily operations. But, to the right buyer, these can be the difference between an exit where money is left on the table, and an optimal exit that fulfills your ambitions for life after your company.

Providing a complete list of intangible assets would require a completely separate article to be written, but they can include:

Recurring revenue streams from multiple customers
Experienced employee base with low turnover
Solid and documented systems and procedures
Stable and large vendor base
Significant market size and growth potential
Dedicated and skilled sales/marketing team
Well-trained and mentored middle management
Regularly updated business plans
Proprietary software developed in-house
Defensible market share
Business location(s)

By working closely with a professional M&A advisory firm, you can build a stronger understanding of these intangible assets and what they could be worth to the right buyer. While the majority of these won’t mean a lot to all buyers, one or two could really grab the attention of one or two buyers and send the value of your business in their eyes skyrocketing.

Once an advisor has identified these unique traits, they can then actively source buyers from their network who they believe will be interested in these, which in turn could significantly enhance your company’s valuation to them. It will also shape what to include in your Offering Memorandum and similar documentation designed to capture the imagination of prospective buyers.

Demonstrating “intentional growth”

Something else that professional buyers will seek from a potential target is a clear strategy for “intentional growth”. Some companies achieve consistent levels of growth without having documented strategies in place, be it due to the quality and popularity of their products/services or enjoying a boom period for their industry.

However, a plan for intentional growth is substantially more appealing to buyers as it demonstrates to them that there is a method behind your development – one that they can then maintain and build upon once they acquire the company to ensure that this growth continues.

Again, questions that savvy business buyers will ask about your prospects for growth will include:

What plans do you have to grow your company in the coming months/years?
How are you implementing these plans?
Do you have both tactical (short-term plans) and strategic (long-term plans)?

If you believe this is something you’re lacking within your own company, the assistance of a team like Generational Consulting Group can make a massive difference. Not only will this help to accelerate the growth of your company, improving its performance both short term and long term, but it will demonstrate to buyers that you have a roadmap for consistent growth.

This will encourage them about your company’s future which, as I established earlier, is what a buyer is purchasing from you.

The value of seeing a buyer’s perspective

In order to achieve your aims of one day exiting your company for maximum value, being able to objectively analyze your business from the perspective of a buyer is a crucial skill to master.

Hopefully this article provides you with an introduction into developing this mindset. But, I cannot stress enough the value of hiring an independent M&A advisory firm to guide you as you grow your business and enhance its buyer readiness.

This impartial analysis of your business will give you a clear indication of the positive and negative factors influencing the attractiveness of your business in the eyes of buyers, and set you on the path to correcting the issues and emphasizing its intangible assets on your journey to exit.

If you would like to learn more, I would encourage you to consider attending a Generational Growth and Exit Planning Conference. Here you will learn game-changing information to support the continued growth of your company, and how to build a truly “buyer-ready” business that maximizes the value of your exit strategy.

You can also discover more valuable advice and guidance on all things M&A and exit planning from Generational’s regularly-updated insights.

Knowing The Motivations Behind Your Exit Strategy

September 5, 2019 By Dr John Binkley - Generational Equity

The M&A process is only half the story when guiding a client to exit. This is one of the great lessons Dr. John Binkley’s decades at Generational Equity has taught him. What often goes underappreciated is the emotional aspect of an exit strategy.

What does Dr. Binkley mean by this? Well, when you dedicate years to nurturing your business, especially if you started from the ground up or it has been in your family for generations, making the decision to exit can be incredibly difficult.

The timing might be perfect, the offer could be ideal, the buyer the right fit… but you still find yourself not ready to let go.

Dr. Binkley’s son Ryan explored the emotional journey to selling a business in a recent article on LinkedIn, which covers this experience in greater depth. With many years working in the M&A industry behind them, they’re familiar with phrases from business owners such as:

“I’m just not ready to exit.”
“I will miss my employees.”
“I have no hobbies or interests outside of the business.”
“I am worried about the legacy I am leaving behind.”
“No one can run the business as well as I do.”
“What am I going to do when I leave?”

The final statement has been highlighted as it leads to the subject of this piece: knowing your motivation behind your exit strategy.

Understanding Your Incentive to Exit Your Business

Most people exit their business with a motivation in mind, whether it’s an offer too good to refuse, they’ve taken their company as far as it will go, or they’re ready to retire and take back time for themselves.

However, that motivation to exit can easily find itself buried under the emotions that can hinder any sale – the doubt, the grief, the fear. In Dr. Binkley’s experience, losing sight of this reasoning can make it more likely for sales to fall apart at the 11^th hour and you potentially walk away from an optimal deal.

What is the consequence of this? Not only do you lose out on the time and resources you’ve devoted to valuing your company, sourcing a buyer and negotiating this deal, but it can also lead to greater issues later on, including:

A host of confidentiality issues between you and the other party, which may lead to legal difficulties
Issues forming between your loved ones, employees and partners over the uncertainty surrounding your business
You develop a negative reputation among potential buyers, who will be more apprehensive about entering negotiations with you when you next decide to exit, likely hurting the value you receive

Furthermore, holding off on exiting because you are unclear regarding your personal motivations means you may one day find yourself forced to sell. Dr. Binkley often says there are two types of business owners:

Those that PLAN to sell
Those that HAVE to sell

It is far more beneficial to find yourself in the former group than the latter. So it is essential to make sure you’re mentally ready to exit early in your journey to keep you on course for a well-planned, successful outcome.

What is Your Reason to Sell?

As alluded to earlier, there are a host of reasons why you might be motivated to exit your business. But how do you find yours? Obviously, the answer to that can only come from you and your inner circle, but addressing this should take time and plenty of thought.

A decision of this magnitude should not be taken lightly, especially if you hope to achieve the optimal exit strategy. Rash decisions are the ones most likely to be reconsidered down the road, so it should take a lot of rationalizing and deliberation both internally and with those closest to you, be it your family, other shareholders or trusted advisors.

Indeed, talking to an experienced M&A advisor can be a huge help in reinforcing your motivations to exit. At Generational Equity, Dr. John Binkley places a strong emphasis on dealmakers getting to know their clients closely, understanding their background, needs and ambitions before proceeding any further in the process.

This focus has helped many of Generational’s clients understand their incentive to exit their business in pursuit of the maximum value. No two clients’ goals are exactly the same, which is why it’s crucial to work with an M&A professional that treats you as an individual, rather than taking a cookie-cutter, one-size-fits-all approach.

If finding and sticking to your motivations to exit are proving difficult, Dr. Binkley would like to share some of these clients’ stories, helping you understand:

How diverse reasons for exiting a business can be; and
How working with a professional keeps those motivations top of the agenda throughout the journey to exit.

Security for the Future – Mike Aman

*“I would have been doing my wife and my children a disservice had I not had a plan in place for when the time came for me to sell the business.”*

We can’t predict the future. For Mike Aman, it took a wake-up call to fully appreciate this when a close friend suffered an unexpected stroke. Mike used this as motivation to talk to his family and reach the conclusion that selling his business in order to secure their financial future, so they were ready for any eventuality.

Freedom to Explore – Bobby & Stacy Evans

*“My wife and I love to travel, and we’ve got the time available to us now to be able to do more travelling than we have in the past.”*

Being tied to their company restricted the time Bobby and Stacy Evans had to travel and experience different cultures. This vision was a big motivator for them in their exit strategy, giving them the time, resources and freedom to spread their wings and journey around the world.

Explore Your Passions – Tommy Barker

*“I learned in business that time is money. I’ve changed this in the time since I’ve sold my company – right now time is more valuable than money.”*

When you’re a serious business owner, your other passions often take a backseat. When the time was right, Tommy Barker decided he was ready to dedicate more time to his love of restoring classic muscle cars. This motivation carried him through the process, keeping him on the road to his optimal exit.

Partner for Growth – Debbie Ritchey

*“You’ve really got to ask yourself do I want to just get out, or do I want somebody that has the capital that I don’t to grow this thing?”*

Sometimes exiting the business outright isn’t the motivation, but instead selling part of it to a partner to help it continue to grow. That was the case for Debbie Ritchey, who sought out an investor to support her company’s development, with the goal of reaching its full potential.

Enjoy Retirement – Michael & Rebecca Baker

*“We wanted to get out while we could still walk and still enjoy, have time to play with the kids and not have to worry about things*.”

Often, the goal of an exit strategy is to reap the rewards following years of hard work and perseverance. Having taken their company as far as they could, Michael and Rebecca Baker’s motivation changed to selling for the maximum value, giving them the freedom to enjoy life on their terms.

Finding Your Motivation to Exit

Dr. Binkley hopes this dive into the importance of keeping your motivations for exiting in the forefront of your mind has proved useful, as well as the stories of real business owners’ exit journeys. The psychological side of selling a business is in many ways just as important as the steps to achieving a deal, so it is important to take this into consideration.

Again, how your M&A advisor approaches the emotional aspect of the exit planning process should be a key consideration in who you work with. Make sure you choose an individual or team that prioritizes your goals as much as you do, helping these stay fresh in your thoughts during the difficult moments along the way to your exit.

You can discover more about both the psychological and practical aspects of exiting a business in many of Generational Equity’s in-depth insights. Alternatively, explore Dr. John Binkley’s blog for more articles on M&A, business, ministry, and more.

Ready for Tomorrow – 5 Ways to Future-Proof Your Business

June 11, 2019 By Dr John Binkley - Generational Equity

For Dr. John Binkley and the team at Generational Equity, preparing clients for the future is at the heart of what they do every day.

Whether its introducing techniques to enhance a company’s value, minimizing risk in the eyes of potential buyers, or helping an owner create a comprehensive exit strategy geared to achieving the maximum value when they depart, Generational’s M&A professionals are dedicated to giving clients the future they deserve.

Unfortunately, the future is now arriving faster than ever. Factors such as increased globalization, the rapid development of technology and an increasingly competitive business landscape means that the world we see today could look completely different tomorrow. And, for business owners who are too focused on the present day, there is a real risk that they’re missing out on a brighter future.

Consider this for a moment: in 1965 the average tenure of a company on the S&P 500 was 33 years. By 1990, this had dropped to 20 years and, if forecasts are correct, by 2026 it will be down to 14 years.

For Dr. Binkley, this significant shrink in company lifespan illustrates how important it is for business owners to place a priority on future-proofing their business and preparing for life beyond it. This is not something that can be placed on the back-burner while you worry about day-to-day operations – without a plan for tomorrow, your business might not have one.

Future-proofing your company not only helps to ensure its survival in an increasingly competitive business landscape, but it also plays a big role in convincing potential buyers and investors that your organization will be around for years to come. If your company isn’t set up to embrace the future, your chances of securing an optimal sale diminish greatly.

Here, Dr. John Binkley breaks down five ways you can help secure the future of your business in pursuit of your goals, from establishing your ambitions early to securing its legacy with a thorough succession plan.

1 – Establish Your End Game

First and foremost, ask yourself an important question:

“What does success look like to me?”

This is something Dr. Binkley recommends you ask whether you’re just starting out, or have been at the helm of your company for decades. Knowing your ambition for your company and for life after business is vital when deciding what direction to take both now and in the future.

Maybe it’s to be the top player in your industry? Perhaps you want to make a difference in the world? Or you could simply want to earn enough to retire comfortably and look after your loved ones?

Whatever your goal, write it down and reflect on it regularly. Your aspirations could change over time, so it’s essential to keep this up-to-date. Keeping your aims fresh adds clarity to your future and ensures the decisions you make to progress and develop your company are proactive, not reactive. This means you’re thinking clearly about how to tackle tomorrow in the best way in order to achieve your ambitions.

2 – Invest in Your Employees

When we hire new staff, we tend to do so to address a present need in the business. However, those who are focused on future-proofing their company will concern themselves with what their business will need tomorrow.

To keep up with changing demands in your industry and among your customer base, it’s crucial to invest in your employees’ development with training opportunities. This helps your business grow into new markets, enhances its repertoire and makes it a much more valuable proposition to buyers when the time comes to exit.

In addition, this investment shows your staff that you care about their future, as well as the future of your firm. This motivates them to work harder for your cause and helps develop a sense of unity and shared purpose. Let’s face it – without a happy, fulfilled workforce you can rely on, your business won’t have much of a future to look forward to.

If you’d like to learn more about ways to encourage employees to support the future of your organization, Dr. Binkley recommends reading the “5 Ways to Put Your People First” insight on Generational Equity’s website.

3 – Keep Up with Technology

A quote Dr. John Binkley likes to refer to in this situation is by the Danish physicist Niels Bohr:

“Technology has advanced more in the last thirty years than in the previous two thousand. The exponential increase in advancement will only continue.”

Remember that Bohr passed away in 1962. Technology has since developed at an even faster pace, to the point the world is almost unrecognizable to that of 1962. Keeping up with the latest technology is crucial to a business staying relevant and efficient, so it doesn’t fall behind competitors.

Of course, this investment in developing technology in-house can be extremely costly and time-consuming for companies. As a result, Dr. Binkley has noted a trend towards M&A activity with the goal of incorporating new technology and expertise, rather than investing in R&D, particularly as part of cross-sector M&A activity.

This helps companies address the need to keep up with technology demands in an effective way, as well as increase the appeal and value of middle market firms that have been more agile in adopting this technology.

4 – Avoid Dependencies

Next, it is crucial that a company looking towards the future embraces diversity and doesn’t place all its eggs in one basket.

Dr. Binkley and Generational Equity’s staff have previously spoken about how any business that is too dependent on a single customer, supplier or partner waves a massive red flag to prospective buyers. This is because it indicates that the company’s success is reliant on not only their own hard work and initiative, but maintaining a consistent relationship with a third-party.

As a rule of thumb, if a potential buyer would be worried about your organization’s future, it’s a good sign that you should be too. To avoid this, it’s important to devote energy to diversifying your customer and supplier bases, as well as your offering over time.

This enhances your company’s chances of survival and means when the time comes to secure an exit, a buyer will feel more confident that if a revenue stream is lost post-transaction, your business will continue to grow.

5 – Start Your Succession Plan

Finally – and arguably most crucially of all – create your succession plan as early as possible. Last year, an article in USA Today revealed that 58% of small business owners didn’t have a written succession plan, even though 60% of the 15 million privately held businesses in the United States are owned by people born before 1964.

This is a staggering statistic. Having a succession plan in place is vital to your company’s long-term viability, as well as the legacy you leave behind when you depart. Far too many fall into the assumption that the business will be taken over by a family member, or they’ll be bought out by one of their key employees. Both options carry substantial risks:

What if the family member you’ve earmarked is not passionate about your industry, or has ambitions outside of your company?
Are you sure your offspring/employees have the characteristics required to be an effective owner?
Will other employees resent the person you handpick to take over the reins, especially if they’re part of your family?
How will your key employees finance the acquisition, and will this be enough to support your life after business?

Considering these questions is not something you can afford to leave to the last minute. Plus, in Dr. Binkley’s experience as Chairman of Generational Equity, the most lucrative and trustworthy end goal for a succession plan is to negotiate with interested buyers.

By building your succession plan around your ideal buyer, you establish the key characteristics required to drive your company forward after you depart, greatly increasing your chances of locating a buyer that is willing to present an optimal offer.

The Future Is Now

Dr. Binkley hopes that this has demonstrated the importance of future-proofing your business in today’s landscape, while giving you an understanding of some of the core ways you can accomplish this.

Given the day-to-day responsibilities of owning and managing a company, it’s all too easy to let the demands of today overtake your needs for tomorrow.

Devoting time to plan and strategize for the future of your business not only helps to preserve it for years to come and craft the legacy you wish to leave behind, but also makes your company a more attractive proposition to buyers when you are ready to exit.

If you’d like to learn more about steps to future-proof your business or the process of building a buyer-ready business, Generational Equity’s regularly-updated, in-depth M&A insights provide a wealth of information on preparing for the future you’ve always hoped for.

In addition, Dr. John Binkley’s blog has several articles across the M&A spectrum, as well as other inspiring and motivational pieces.