In the preceding blog, A Curb Appeal Checklist, we listed some quick ways to enhance the value of your business before putting it on the market. Now in the Renovation Checklist below, we look at ways to increase the value of your company by focusing on its underlying infrastructure. Renovation projects take more time but can deliver much more value.
In contrast to Curb Appeal projects, Renovation projects typically take longer, cost more, can require more creativity to complete and their successful outcome may be less certain. Yet taking on Renovation projects can push valuation up much further than Curb Appeal projects.
In fact, some Renovation projects are so important that as long as they remain undone you may find it difficult to sell the business at a fair value or even at all. Forbes and Class VI Partners generally describe Renovation projects from the perspective of why you should do them. While that’s valuable, I take a more granular approach, itemizing what specific steps you need to take in order to complete them.
Now… the Renovations Checklist
- Upgrade IT/control systems. Can you slice and dice your client data to show their retention, margin, revenue size, growth over time, location, industry, etc., then use that data to guide the growth of your business?
- In a related point, do you have a management dashboard you can use to monitor key metrics in near real-time? Metrics like sales volume, margin, progress toward strategic objectives (e.g., increase the sales of a new product, reduce the number of marginally profitable and unprofitable clients, etc.)?
- Maximize cash flow by streamlining and automating accounts receivable and accounts payable processes. Reduce days outstanding for both A/R and A/P in order to “right-size” net working capital (NWC). (To the degree that your NWC is insufficient, it will ding the value of your business dollar-for-dollar.)
- Reconfigure production processes to enhance efficiency and economy.
- Look for automated solutions and new suppliers to improve the cost and speed of service and product delivery.
- Launch a new marketing/sales campaign.
- Launch one or more products or services to prove that they promise a new path to growth.
- Ease out less productive and/or overpaid managers. |
- Identify and groom a potential successor to your role.
- Exit from slow-growing or unprofitable products/markets.
- Divest unrelated businesses.
- Reduce the number of shareholders and board members for quicker, more unified decision-making. They can become cumbersome, even obstacles, when negotiating terms with acquirers.
- Salt employees as officers throughout leading trade groups.
- Whenever possible, replace non-assignable or conditionally assignable client and supplier contacts with freely assignable contracts. Doing this in advance of selling a business can enhance its value substantially.
- Revisit and negotiate more advantageous supplier contracts.
- If office/factory space is tight, get options on larger facilities and/or negotiate shorter-term leases with the option to renew.
- Reduce client concentration: keep single clients below about 20% of sales. Ideally, four clients together don’t account for more than about 40% of sales.
Wrapping It Up
While the number of Renovations above may appear daunting, each one is discrete. Thankfully, some will also be unnecessary. Talk to us about which ones you think have potential and — if you give us some idea of the nature of your business — we can probably come up with a few Renovations that are specific to the unique circumstances of you and your business. In our next blog we’ll discuss ways by which you can determine whether the time is right to market your business for sale. Check out When is the Right Time to Sell the Business?