Posted On July 5, 2021 by Brentwood-growth
Deciding when to sell your business is a huge decision, both from a financial and non-financial perspective.
The vast majority of business sales are either to fund retirement, or because the owner feels it’s time to turn the page and move on. Timing is everything from both your standpoint and the market’s. Critical questions to ask are:
—> What is the business actually worth?
—> How much of that value is me, as the owner?
—> Can I get enough after-tax proceeds to fund my retirement?
—> Who would buy it?
Is this the right time or should I wait and focus on a few critical items to increase the value over the next several years?
First let’s talk about the financial performance of 2019, 2020, and 2021, and COVID’s impact. For many companies 2020 was a tough year. With the economy shut down for several months, financials for the year took a hit. A common question is: how will 2020 impact my valuation should I choose to sell in 2021 or 2022? The answer is that it depends on how quickly you can recover.
As you begin to pull out and move through 2021 from a valuation and sale standpoint, the key is to be able to demonstrate that 2020 was an aberration, not the norm. That means revenue and profit margins for 2021 need to return to, if not exceed, 2019 levels with a strong plan in place from a product, service, and go-to-market strategy for years to follow. Potential buyers need to be confident that the business will not only rebound quickly from a revenue standpoint, but that there are strategies you are executing and they can accelerate and lead to solid growth rates.
The following is a brief list of items we call the Brentwood Growth Value Enhancement which we suggest you set your strategies around:
—>Higher Net Margins: net margins with ‘owner add-backs’ over 20%.
—>Strong Revenue Growth Post COVID: pre-COVID 20% annual growth rates with 2021 back to 2019+ levels.
—>Client Diversification: you do not want to have any one client be 20% or more of your sales.
—>Reoccurring Revenue: contractual, stable, and predictable revenue brings higher value.
—>Clean Balance Sheet: strong working capital position with little debt.
—>Management Team Depth: your business is not solely dependent on you.
Brentwood Growth can assist by completing an initial valuation of you business. From there you can decide if the timing is right to sell now or if you should wait and build a strategy on value enhancement and reassess at a future point. We complete this valuation at no cost as it is our investment in the relationship, and it gives us an initial chance to work together. You can then decide if we are the right partner, and if you’d like to move forward. If you choose to wait and build value, we can work with you to create an execution strategy around each of the above six areas.