Hardwood Floors August/September 2018

By Jonathan Benner

All images: BigStockPhoto ©

management teams and excellent systems, but whose cash ow primarily is dependent on one or two customers. Why spend millions of dollars on a business only to have those customers go elsewhere a er you’ve acquired the company? Another value driver, then, is the development of a customer base in which no single client accounts for more than 10 percent of total sales. A diversi ed customer base helps to insulate a company from the loss of any single customer.

continue to grow with its existing management and will demonstrate their con dence in future cash ows by paying a higher sale price. Operating systems e second value driver is the development and documentation of business systems that generate recurring revenue from an established and growing customer base. Business systems include the computerized and manual procedures used in the business to generate its revenue and control expenses (i.e., create cash ow), as well as the methods used to track how customers are identi ed and how products or services are delivered. e establishment and documentation of standard business procedures and systems demonstrate to a buyer that the business can be maintained pro tably a er the sale. Established & diversified customer base Put on those buyer’s shoes one more time and you’ll nd yourself shu ing past companies with great

Proven growth strategy Buyers pay premium prices for companies having a realistic strategy for growth. at strategy must be communicated to a potential buyer in such a way so that a buyer can see speci c reasons why cash ow and the business itself will grow a er it is acquired. e growth is illustrated in pro forma statements that will be used by buyers and investment bankers when formulating a discounted future cash ow valuation of your company. Building and documenting a positive growth story, however, is only 90 percent of the game. e remaining 10 percent is knowing how, when, where, and to whom to tell your story. e storytelling takes place during the sale process and is done with the guidance and assistance of an investment banker or other transaction intermediary. at is the time when you force savvy buyers (meaning those with lots of money) to pay for the value you have created in your business.