By Laura Mower
Deciding whether to sell your business is a difficult calculation even in so-called normal times. During periods of upheaval, the decision is even more challenging. What are some important insights to keep in mind?
❱ All ground transportation companies are not created equal.
With the wealth of information readily available on the internet, it is tempting to want to use search results to create a preconceived impression of value for our company. This can lead to over- or under-evaluating your business. Often, what you will find online is a single-factor snapshot (such as an EBITDA multiplier) of a sale that doesn’t address the intangible or qualitative factors impacting the sale. Additionally, you should be aware that often these transactions are being completed by brokers who do not have strong experience with the sale and acquisitions of chauffeured car companies like yours. [Your company is unique; its valuation is, too.]
Selling your company is a significant business decision, and you’ll want to work with professionals who know how to look under the hood (no pun intended) to ensure you get the maximum value for your company.
❱ Know your numbers; know your worth.
When deciding to sell (or entertain the idea of selling), it is important to know your numbers. While there are qualitative, intangible factors, the foundation for any valuation will be your numbers: revenue, EBITDA, discretionary expenses. To maximize value, access to this information is a must. [If you are not ready to disclose them, then you are not ready to sell.]
It’s not just the financial statement numbers that matter: assessing the quality and sustainability of your business requires the review and understanding of unique customer list counts, revenue per transaction, and fleet quality and activity, to name a few factors that will impact the intangibles.
❱ “We have the best customer service and satisfaction.”
Not surprisingly, nearly every company will tell you (whether it’s true or not is a different article) they offer the best customer service. Start thinking about—wait, scratch that—pull out a piece of paper (or your keyboard) and starting writing what makes your business different from every other company out there. To be honest, this is something you should already know. What are your verifiable market differentiators that add value to your company, not just for your customers but for a potential investor/buyer? Do you have a fleet strategy that retains your place as a market leader? Do you have support for a statement of market domination? Do you have healthy, long-term shuttle or corporate contracts? Think along these lines as to what a future owner would be interested in for sustaining and growing revenue.
❱ Timing Matters
Most sellers want to maximize value. For most sales (distressed sales are different), this also involves the right timing. It is essential to not only get guidance on your company’s valuation but also on the appropriate time to sell or not sell. Timing factors, such as the impact of seasonalized earnings and unprecedented matters like impacts of a pandemic, will impact the supply and demand in the market and, ultimately, valuations.
❱ Changing Landscape
Nothing has taught us more about the sustainability of our businesses and our own ability to pivot and innovate than the last year. A strength of your company may lie in the ability to reinvent and grow during unprecedented times; if you did this, go back and add it to your list of differentiators.
However, many companies may be looking to sell because the impact of a mass pandemic and related restrictions on their business model was too great of a storm to weather. The truth is, reduced margins and profitability in recent times are likely to have a similar impact on your valuation. More than ever, it is important to engage with a professional experienced team to guide you through the process.
❱ Fake News
You couldn’t help yourself ... You searched online and saw multiple sales where companies were sold for x times EBITDA, and woohoo! You’re going to be rich(er)! Or maybe you’re crying because you think your company is worth way more than that and now you’ll never be able to retire.
Don’t go buy that Lambo or give up on selling (or retiring) just yet.
Experienced brokers will help you understand the true value of your business without your needing to wade through the real news versus fake news on the internet. And as I mentioned before, each business (and its market) is unique, and it’s tough not to be emotionally invested in this process. They will consider many things including the items previously addressed and then determine how (and if) they will impact the realizable value for your company—not to mention adding some objectivity to the deal. Companies that look the same on the surface are unlikely to look the same in a valuation analysis. [CD0421]
Laura Mower, MBA, is Senior Financial Consultant for LMC CFO. She can be reached at email@example.com.