The Strategic Sellability Plan (SSP) is designed to help business owners work with key advisors in preparing their business to sell. While there maybe cross over between different approaches to business growth strategies and exit planning, the goal of the SSP is to provide a unique, realistic perspective into the sellability of a business and what key adjustments should be made in the years before selling.
The SSP is primarily for business owners but can also be a means to help further develop and promote a wide range of business strategies for financial planners, accounting/CPA firms, and business advisors/coaches.
The results from the SSP help identify areas that will highly impact the sellability of the business and also provided recommendations for how these can be addressed in the following 5 key areas:
1. Financials
Financial trends are critical but there is much more to just having an experienced accountant and solid financial statements. Different tax strategies based on the type of entity should be considered along with a plan for positioning the business to attract the right type of deal structure and increase available financing options. Depending on the type of business, determining ways to address working capital and understanding realistic capital expenditures should also be addressed and implemented as part of the strategy.
2. Assets
Tangible assets are always an important factor, but intangible assets are often overlooked or inaccurately valued. Patents and trade secrets can help drive value when they have been properly monetized in the business and can be easily shown in the financial reporting. Inventory management is another key area that often goes unaddressed until it’s too late which could result in requiring the seller to give up more working capital than necessary at the closing table. Both client and supplier agreements are also critical to fully understand and address to ensure any restrictions in terms of assignment and assumably are built into the timing of the sale.
3. Real Estate
Whether the real estate is owned or leased, understanding all the options available is essential. Many times, sellers will minimize the importance of addressing these issues early in the process before going to market. With the commercial real estate market in a continual state of flux, it is more important than ever to understand the capacity of the current facility and what resources will be needed to grow the business after the ownership transition. In addition, the strategy needs to clearly outline growth opportunities and help ensure the real estate does not negatively impact the value of the business. By having the real estate available in the purchase with the business, financing options become more attractive which can help drive buyer interest and overall business value.
4. Operations
The dependence of the business on the owner is one of the top factors that can drive business value. If an owner can effectively start building themselves out of the business at least a few years prior to the sale, the return can be appreciable at the closing table. This requires consistent focus on training of key employees and 2nd level management in the company. In addition, documenting all processes and methods of doing business will help build the foundation to help ensure a smooth transition and future growth.
5. Market/Industry
While there are many aspects an owner can change in their business, understanding changing market conditions and industry trends is just as important. Markets will cycle but key industry metrics used to value a business for the most part remain the same so knowing how these apply to a specific business can further position a business for sale at the right time. It is also critical to understand how barriers to entry have changed and how future local/national legislation could change the market. While publicly available information can provide a high-level vision of the future, access to reliable industry reports to provide key insights over the next 5-10 years can prove to be invaluable when it’s time to take the business to market.