MarketView Business Sale & Exit Opportunity Assessment

1

1. The company has a diversified customer base with no single customer > 15% of total revenue.* This field is required.*This field is required

Yes

No

2

Response Yes

3

Q1 Evaluation

You indicated that your business currently has a high level of customer concentration. It is very common for successful small businesses to grow into successful larger businesses with one or two great customers. There is nothing wrong with having those customers, and they probably made you a lot of money over the years. The problem is that heavy customer concentrations turns off potential buyers and they will deeply discount the value of your business if this is not corrected. Before attempting to sell your business, you should find ways to diversify your customer base.

4

Q1 Score

5

2. The company has a diversified supplier/vendor base with no single supplier/vendor > 15% of total purchases.* This field is required.*This field is required

Yes

No

6

Q2 Evaluation

You indicated that your business currently has a high level of vendor concentration, with at least one supplier/vendor representing more than 15% of your purchases. This is not uncommon for smaller businesses. You may purposely avoid spreading your purchases too thin in order to take advantage of quantity purchase discounts. This may be sensible while you own the business, but can hurt you when you try to sell the business.  &#13;&#10;&#13;&#10;Before attempting to sell the business, you should, at minimum, identify alternative sources of materials, inventory or services that represent more than 15% of total purchases. From these vendors, you should obtain firm pricing quotations. Buyers want to know there are multiple, competitive vendors for purchased materials, supplies, finished goods and services.

7

Q2 Score

8

3. The company has a retention program to ensure key employees don't leave the company prior to a sale.* This field is required.*This field is required

Yes

No

9

Q3 Evaluation

You indicated that your business does not have a formalized retention program for key employees. This is a common issue for small and mid-size businesses, and it can be the death knell for a sale transaction. For most businesses, whether you are a manufacturer, distributor, or service business, your most valuable assets are your employees. Even if your business owns intellectual property such as patents, trademarks, trade secrets, and copyrights, it takes talented and knowledgeable people to monetize any business. If the key people don’t transfer to the buyer with the sale of the business, the value can be compromised and the transaction itself jeopardized. Examples of key employee retention programs include compensation and bonus programs, stock options, challenging career opportunities, positive company culture, workplace flexibility, stay bonuses, and many more.

10

Q3 Score

11

4. All of the company’s equipment and systems are up-to-date and suitable for anticipated growth.* This field is required.*This field is required

Yes

No

12

Q4 Evaluation

You indicated that not all of your equipment and/or systems used in your business are current, relevant, and adequate to support projected growth. As a business owner, it is tempting to defer purchasing capital equipment as long as possible in order to conserve cash and squeeze every last bit of life out of your assets. This may be a great strategy for the owner who does not expect to sell the business and plans to close the doors and walk away when they are ready. &#13;&#10;&#13;&#10;If your plans are to sell your business, it’s a different matter. A buyer of your business is purchasing the future of your business, not the past. If the future of your business requires large capital expenditures to replace your equipment in order to continue operations, the buyer will not pay full value for the business. They will discount the value because the future capital expenditures equate to additional purchase price for the buyer; they must spend additional money after buying the business just to maintain your cash flow, and YOU will pay for it. &#13;&#10;&#13;&#10;Purchase and maintain your capital equipment as if you are plan to keep your business forever. You will more than make up for the additional equipment costs through increased operating efficiencies and enhanced “curb appeal” to a buyer.

13

Q4 Score

14

5. The owner has a good understanding of the company’s valuation.* This field is required.*This field is required

Yes

No

15

Q5 Evaluation

You indicated that the owner does not have a good understanding of the company’s valuation. This is not uncommon. Business owners are experts at running their business, but are not normally experts in business valuation. As a business owner, it is critical that you know the value of your business prior to launching a sale process. &#13;&#10;&#13;&#10;Why is this so important? Because the sale of a business is a brutal process. It is expensive, time consuming, and a huge distraction from daily operations. Before you hire a business broker or M&A advisor, you should have a very good idea what it is worth today, and what you can do to enhance both value and marketability. Without this information, you are unable to make an informed decision about moving forward with a sale, or whether or not a sale will meet your objectives. The worst thing that can happen is for you to do all the work required to sell your business and then find out that you can not achieve your objectives through a sale. &#13;&#10;&#13;&#10;Learn the value of your business, understand what can be done to enhance its value, and begin working on those now. The sooner you begin, the more time you have for your value enhancement efforts to pay off.

16

Q5 Score

17

6. The owner has identified potential buyers for the business.* This field is required.*This field is required

Yes

No

18

Q6 Evaluation

You indicated that you have not identified potential buyers for your business. This is not a big deal as long as you own the business but knowing potential buyers before you put your business on the market for sale can be very valuable to you. &#13;&#10;&#13;&#10;First of all, if you know of potential buyers, it means you are already in the mindset of a serious seller. You’ve been thinking about it and have some understanding as to who would find your business attractive and the reasons why. (You must be serious if you plan to sell your business. If you’re not serious, there is a good chance you won’t be successful. The process is too time consuming, too difficult, and too frustrating to complete if you’re not seriously committed to it.) &#13;&#10;&#13;&#10;Secondly, if you can identify qualified, interested buyers before launching a sale process, you will give you M&A advisor or broker a head start marketing the business, potentially accelerating the sale. (By the way, just because you have a few names already that may be interested does not mean you should circumvent hiring an M&A advisor or broker and launching a broad-based sale process. We always recommend that owners use a professional advisor to sell their business and that they run full sale process-not an abbreviated one.)&#13;&#10;&#13;&#10;To identify potential buyers for your business, you can begin by identifying larger players in your space (strategic buyers) and private equity groups active in your industry (financial buyers). When strategically and carefully executed, direct conversations with such buyers can be extremely informative to you as a business owner. Caution: NEVER discuss your expected or target valuation for your business with potential buyers. This will only hurt your valuation with the particular buyers in the future. Leave that discussion for your M&A advisor or business broker to have.

19

Q6 Score

20

7. The company’s gross and net profit margins are above industry averages.* This field is required.*This field is required

Yes

No

21

Q7 Evaluation

You indicated that your business does not produce gross and or net profit margins above industry averages. This will put you at a disadvantage when you try to sell the business. Buyers have many businesses to choose from. If your business performance compares unfavorably, it’s a red flag to buyers. They’ll devalue your business and may even eliminate it from consideration. &#13;&#10;&#13;&#10;Identifying underperformance before launching a sale process is a valuable exercise. If you can understand the reasons behind your business’ underperformance well before launching a sale process, you have time to take action to improve your margins. Higher margins result in higher valuations and also make the business more appealing to buyers.

22

Q7 Score

23

8. The company’s working capital has been managed with a future sale in mind.* This field is required.*This field is required

Yes

No

24

Q8 Evaluation

You indicated that your working capital has not been managed to optimize its value to you when the business is sold. This is an issue that few business owners are even aware of, but proper management of working capital can produce material value for a selling owner.&#13;&#10;&#13;&#10;How does this work? When a buyer is purchasing a business, they are normally buying it as a going concern, meaning that they intend to continue operating it after ownership is transferred. This means that the price paid for the business is based on the buyer ending up with all of the assets required to continue operating the business normally. Because an appropriate level of working capital is needed to operate the business after the sale, it is assumed that the purchase includes adequate working capital so that the owner is not required to invest additional funds in the business to maintain status quo. If the buyer does not believe the business has sufficient working capital to maintain status quo on the sale date, they will likely require you to reduce the sale price to reflect the shortfall. &#13;&#10;&#13;&#10;To avoid this problem, you should manage working capital closely to minimize the level of working capital in the business over a period of time. Because buyers do not ordinarily acquire cash that is in the business (that stays with the seller) we are talking about managing your inventory, accounts receivable, and accounts payable efficiently. If you can demonstrate that the business can operate successfully with less working capital than your peers, this does two things: 1) it shows the buyer that you run a tight ship, reflecting favorably on the business and management team, and 2) it puts more money in your pocket at closing (because you get the keep the cash in the business). Efficient management of your working capital produces has the same impact that a higher sale price would have.

25

Q8 Score

26

9. The company’s inventory is fresh and relevant to its current business.* This field is required.*This field is required

Yes

No

27

Q9 Evaluation

You indicated that the inventory in your business is stale and possibly not relevant to your current business. Unsold inventory of every type becomes outdated at some point. If your business has accumulated stale inventory, know that at the very least, your sale price will be negatively impacted. In addition, the accumulation of stale inventory can reflect poorly on your management practices and/or systems. This can be a deal killer. &#13;&#10;&#13;&#10;To optimize the value and salability of your business, manage your inventory efficiently. Don’t maintain more inventory than you need, and get rid of stale inventory that does not support your current business. In addition, take a physical inventory at least annually and make sure your inventory is properly reflected in your financial statements.

28

Q9 Score

29

10. The company produces monthly financial statements that are presented on a consistent basis.* This field is required.*This field is required

Yes

No

30

Q10 Evaluation

You indicated that your business does not produce monthly financial statements that are presented on a consistent basis. We can not emphasize how important this is for many reasons. If you’re not producing monthly financials AND they have not been prepared using consistent accounting methods for the past 5 years, you have work to do. Any serious buyer will require 3-5 years of monthly financials (income statements and balance sheets) to evaluate your business, whether you have them or not. If you don’t have them, you’ll have to create them. This is definitely not something you want to do in the middle of a transaction!&#13;&#10;&#13;&#10;As a business owner, you should be receiving and reviewing in detail your financial statements AT LEAST monthly. It is not possible to be on top of your business and maximize its value if you don’t understand and track your numbers. If reading financial statements is not your strong suit, get some help and make it one! Pay your CPA or another trusted and competent advisor to tutor you. It will be money and time well-spent.

31

Q10 Score

32

11. The company’s financial statements are prepared in accordance with GAAP.* This field is required.*This field is required

Yes

No

33

Q11 Evaluation

You indicated that your financial statements are not prepared in accordance with GAAP. This may not be a big deal as long as you own your business, but for any buyer of your business, it can impact both your valuation and your salability. Generally Accepted Accounting Principles (GAAP) are simply a common language that buyers understand without explanation. Using non-GAAP accounting methods is common in privately-owned businesses, but it can create confusion, extra work, and added expense to a sale process which is already difficult.&#13;&#10;&#13;&#10;If you are not using GAAP in your business, it would be ideal to have the last 5 years’ financial statements adjusted to reflect GAAP before putting the business on the market for sale. If this is not an option (perhaps due to time or cost), be prepared to explain why you don’t use GAAP and proved a complete listing of the items in your financials that depart from GAAP and what methods of accounting you are using. This stuff takes time, which is why you want to take care of it now and not wait until transaction time. It must be done sooner or later, and sooner is better!

34

Q11 Score

35

12. The company’s products/services are materially differentiated from competitors'.* This field is required.*This field is required

Yes

No

36

Q12 Evaluation

You indicated that your products or services are not materially differentiated from your competitors’. A significant differentiating factor between your product/service and others available to your customers can be a real source of value to you while you own the business, and also to a prospective buyer. Buyers want to know that this value can be effectively transferred to them and how long this advantage can be maintained.&#13;&#10;&#13;&#10;Some competitive advantages are more obvious that others. If you don’t believe your products or services are different from your competitors’, then why does anyone do business with you? If your answer is “low price”, keep looking. Low pricing may be why customers buy from you, but it’s the easiest competitive advantage to lose, unless you happen to be the dominant low-cost provider in your space (think Walmart). If your unique process or systems allow you to produce at a cost that others can’t match (Walmart has unmatched buying strength), then it’s a defensible competitive advantage. So if you happen to be the low cost producer and offer the lowest prices to your customers, this IS a material differentiator or competitive advantage. &#13;&#10;&#13;&#10;We challenge you to contemplate the question, “Why do our customers buy from us?” With some thoughtful attention to this question, develop a list of answers. Included in this list are your competitive advantages. These may be the quality of your product, the warranty you offer, the range of product choices you offer, the sale terms you offer, etc. It is likely that you have competitive advantages that you did not consider, but that may be very valuable in the eyes of a prospective buyer of your business, and it pays to be aware of them before initiating a sale process.

37

Q12 Score

38

13. The company has a written business or strategic plan.* This field is required.*This field is required

Yes

No

39

Q13 Evaluation

You indicated that your company does not have a written business or strategic plan. Many businesses do not have strategic plans beyond what’s in the owner’s head and are never written down. Strategic plans are not just for big business; they are just as important for small and mid-sized businesses. &#13;&#10;&#13;&#10;As a business owner, you likely have ideas about the direction you want to take the business in the future, but you may be unsure how or even why it is important to document them as part of a strategic plan. If you are unsure how to create a strategic plan, there are many highly qualified consultants who, for a reasonable price and in a short time, will help you convert your company vision into a clear and actionable strategic plan. A good strategic plan can be distilled into a concise 1-2 page document. &#13;&#10;&#13;&#10;How does a strategic plan create value when you are planning to sell your business? Here are just of few ways it will add value to your business: 1) it distinguishes you from all of the businesses with no strategic plan, 2) it makes you a better leader, 3) it helps build a stronger culture within the business through a shared sense of purpose, and 4) it demonstrates to the buyer that you believe the business has a bright future and you have a plan to achieve it. &#13;&#10;&#13;&#10;Do not attempt to sell your business without having a clear strategic plan that you can share with buyers.

40

Q13 Score

41

14. The company has no history of employment discrimination.* This field is required.*This field is required

Yes

No

42

Q14 Evaluation

You indicated that your business has been guilty of employment discrimination of some type. This is a serious issue, particularly in light of the recent “Me Too” and “Black Lives Matter” movements. In today’s environment, there is no tolerance for discrimination of any type for any reason. For many buyers, any hint of problems of this nature is an automatic deal killer. They’ll just move on to find a different business to buy. &#13;&#10;&#13;&#10;To preserve the value of your business and to minimize the damage employment discrimination has caused you as an owner, you must discontinue such activities, address past issues quickly and with sensitivity and genuine remorse, make necessary changes to prevent recurrence, and be transparent to the public and your employees about what occurred and what you are doing about it. &#13;&#10;&#13;&#10;This is such a toxic and explosive problem that you should not attempt to manage it alone. You should enlist the best experts (legal, public relations, human resources, etc.) you can afford to help you navigate these dangerous waters.

43

Q14 Score

44

15. All company shareholders are in agreement with the decision to sell the business.* This field is required.*This field is required

Yes

No

45

Q15 Evaluation

You responded that all shareholders are not in agreement with your decision to sell the business. This situation is not uncommon in closely held businesses with multiple owners. Lack of consensus regarding selling a business can be simply because the owners have not discussed the issue collectively, or there may be disagreement over whether the business should or should not be sold, the timing of a sale, the required valuation, post-sale involvement with the business, or many other reasons. &#13;&#10;&#13;&#10;A word of caution to you as a business owners: in most cases, avoid beginning a sale process without agreement among all shareholders regarding the purpose, timing, target valuation and process for selling the business. This is especially important with shareholders who are also key leaders in the business and are critical to its success after the sale transaction. We have seen very attractive sale transactions vaporize when minority shareholders felt slighted that they were not included from the beginning of the sale process, and they created such upset that the buyers withdrew their offers. &#13;&#10;&#13;&#10;Full disclosure and full agreement among shareholders are preferred but may not be realistic or practical. Each situation is unique and must be considered individually. The business’s shareholder agreement or operating agreement may have provisions covering the sale of minority interests in the business. Some require 100% agreement in order for any shareholders to sell their interest while others require that minority shareholders do whatever the controlling shareholder does. &#13;&#10;&#13;&#10;The key messages here are: 1) as owner, know your rights, requirements, and restrictions regarding the sale of the company’s stock before a sale process is launched, 2) if you are transparent you are with minority shareholders about your plans to sell, they will be less likely to torpedo your deal, and 3) buyers become very nervous about any acquisition where it is evident that the owners are out of sync.

46

Q15 Score

47

16. The company has at least 3 years of Reviewed or Audited financial statements.* This field is required.*This field is required

Yes

No

48

Q16 Evaluation

You indicated that your business does not have at least 3 years of historical Reviewed or Audited financial statements. It’s pretty common for smaller businesses to prepare their financial statements internally using a system like QuickBooks, and having their accountant prepare income tax returns at year-end. Larger businesses may elect to have Reviewed or Audited financial statements, or they may be required to have them by their banks or for bonding purposes. If you are considering selling your business in the next 3 years, it may be worth having a quality CPA firm prepare Reviewed or Audited financial statements before putting your business on the market. This adds value and salability to a business. By having Audited or Reviewed financial statements, you are making a statement to the buyer that you are serious about producing quality financial records. In addition, these statements have more credibility than internally prepared financial statements because they have been reviewed by an independent firm and presented with explanatory notes. &#13;&#10;&#13;&#10;Not all buyers require Audited or Reviewed financial statements, but they ALL prefer them to internally prepared statements. Sophisticated buyers may require Audited or Reviewed statements in order to thoroughly review the business for acquisition. When this is the case, you will have to incur the (even higher) expense of having these statements prepared in the middle of your transaction. This will delay and potentially jeopardize closing. &#13;&#10;&#13;&#10;We recommend that if you have never had CPA Audited or Reviewed statements in the past, you should discuss this with your CPA and seriously consider it.

49

Q16 Score

50

Please Enter Your Email* This field is required.*This field is required

Please Enter Your Email

51

Name(optional)

First Name

Last Name

52

Phone Number(optional)

Area Code

Phone Number

53

Total Score in %

54

Total Score

55

Total %

56

Note

your business appears to be well managed and most of the key value and salability measures have been addressed. The business should be salable and could even command a premium valuation.

57

Note Mid

58

Note Low

your business appears to lack some important value factors.  In its current state, if the business attracted any offers from buyers, they would very likely be at the lower end of the value range.