Great management teams drive top value

April 19, 2017

Great management teams drive top value

Synopsis
3 Minute Read

Developing an independent management team is key to maximizing the value of your business

Sandy Adachi
Sandy Adachi, CPA, CA, CBV
Business Advisor, Valuation and Litigation Support Services
This article was previously published in BIV and is reproduced with permission.

There is an old adage in business and that is everything is for sale, even the business.

As a business owner, planning for an exit is part of your enterprise’s evolution. Building a strong management team is an essential component of that plan to ensure your business operates smoothly now and into the future.

Your management team are key value drivers, along with strong cash flow, signed continuous long-term contracts and long-standing relationships with diversified customers.

A company with depth of management, where team members demonstrate expertise, experience and solid decision-making skills, carries on operations efficiently while you, the leader, focus on the bigger picture. Moreover, they provide investors assurance your business will be able to maintain and sustain growth after you move on.

Make a Plan

Ideally, it’s best to start three to five years in advance of selling a business to allow for sufficient time and care up front to maximize the value of a business and find a suitable buyer. This is also a good timeline to ensure you have a good management team in place.

Selling a business is a journey that normally takes between six months and two years. It might need to be kick started several times, as well, before an actual closing takes place. As the business owner, you will need solid backup in the form of trustworthy management and a team of external professionals to help you through this process.

Assuming the proper depth of management is in place, you will have more opportunities to critically look at your business and make improvements to increase future value; to spend the necessary time with a team of professionals to advertise the business, find potential buyers and to negotiate and close a deal with an acceptable price, type of consideration and management contract, if the exit is phased. Ultimately, you can focus on your last contribution to the company’s business plan - enabling a successful transition and continuation of the business without you.

Due Diligence

Once a buyer has been identified and a letter of intent signed, the due diligence process will start. This can be an extremely time-consuming and daunting task. It is important to let the management team be aware of an upcoming sale early in the process, since having a management team supportive of the sale should foster co-operation at all levels of the organization (hearing about a pending transaction on the street will likely not go over well).

Without depth of management, it would be impossible for you to attend to the volume of information requests from the new buyer’s professional team and run the business at the same time. Peace of mind from having a qualified management team that can rise to the occasion and take on additional roles and responsibilities will allow you to stay focused on the deal to facilitate an optimal exit.

How Valuable?

Depth of management may possibly be the second most important value driver, next to cash flow. It effectively converts “value to me” to “value to we.” Buyers will pay a price for the later and not the former as, what’s the point of paying for something that will walk out the door when the transaction closes? The management team is being sold with the business, so focusing on building this asset up will assist in maximizing the value of the business upon succession.

For more information, contact Sandy Adachi, Valuation Services, at 604.536.7614 or [email protected].

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