Market conditions are such that many operators must consider this question to maximize their selling price. The first of a series examines what operators must do to make this process work to their advantage.
In today’s challenging business environment, there is a new urgency to the question that most vending operators face at some time in their career: Is it time to sell the business?
Many operators are looking to the future and asking this question because they have little appetite for the continuous capital investment and intense effort that will be needed to maintain profitability in today’s ever changing marketplace.
Numerous articles in this magazine have addressed the causes for this situation, so I will not go into them here. Suffice it to say that for many operators today, selling the business now is the best option they have to optimize the capital value they have created in their business.
Operators who aren’t planning to sell must plan to grow if they wish to stay in business.
Few things are certain in today’s world, but I will guarantee you that all the new challenges, including increased costs and ferocious competition, are here to stay and no one can remain at their present profit level without growing the business. Cost cutting may hold off the red ink for a while, but this is a one-trick pony and will only postpone the inevitable.
This article will address what operators must do to maximize their selling price.
When deciding if it’s time to sell the business, ask the following questions:
- Is your enthusiasm and energy for the business still strong? Do you still love this business?
- Do you have the financial depth to stay the course, knowing it may get worse before it gets better?
- Have you invested in technology?
- Do you invest in the training and development of your people?
- Do you have a formal marketing strategy? (Sadly, many operators spend more time planning their company picnic than they do planning for growth.)
If you answered “no” to these questions, it’s time to consider selling the business.
If you wait too long, your company is likely to bring a lower price when you eventually do decide to sell.
TIMING THE SALE IS CRITICAL
If the seller waits too long to sell while the company is experiencing problems, the company risks minimizing its selling price, or possibly becoming unsellable altogether. No investor will purchase a company with a negative net worth. Hence, speed is often essential in maximizing the company’s selling price.
Troubled sellers can go too far in cutting cut costs to improve their prospects for a successful sale. A seller must be very careful about cutting costs.
By not investing and maintaining adequate staffing needed to sustain the company’s performance, the company risks hurting its sale value.
MAIN CONSIDERATION: SUSTAINABLE PROFIT
The main objective in the process of selling the business is to prove a sustainable profit; present and future. Everything else is secondary. A business may claim to be profitable, but this must be verified through a judicious and methodical examination of facts. This process is called due diligence.
The due diligence checklist is shown on the next page.
The first item on the due diligence checklist is recasted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). To “recast” is to change the form of something, in this case, the seller’s financial statement. The objective of this analysis is to show the company’s profitability as it is now and as it can be in the future when synergies and economies of scale are considered.
What is your company worth? The key consideration is sustainable profit. While there are other factors that influence value in the eyes of the buyer, profit is the overriding element.
There are different ways to determine the selling price based on the profit. I am not going to go into the different formulas used to determine a specific figure.