Cash In at the Hand Off

In a prior blog, A Surefire Tactic to Improve Your Valuation at Exit, we featured the #1 action you can take that will absolutely pay dividends at transfer:  invest in your management team.

A Kaufmann Foundation whitepaper on valuation indicates professional investors weigh the strength of the management team as 3X more valuable than the quality of the sales channel; and 2X more valuable than the competitive market position. 

Acquirers, both strategic and financial look for exceptional teams and will pay up for them.  They view bench strength beyond you as a way to guarantee performance, and reduce operating risk once you transition out of the company.  Think of your management team as the baton you can pass on to the new owner.  The smoother you can pass it on, the less likely they need to slow down during the hand-off.

But the same is true for you.  The more nimble the hand-off, the more quickly you can keep running toward your exit, without tripping or stumbling which could cost you money.  A Pepperdine University study reveals that 39% of reported business sales and buyouts involved owner earnouts and 30% require seller financing.  That means a significant amount of the value exchange occurs post sale, and is dependent on the future performance of your company.  And who will be primarily responsible for hitting the numbers?  Your management team of course.  So ensuring your team is ready insures you receive the full value you negotiated.

Can You Count on a Payoff?  

First, take an honest look at your team. Are you concerned your team:      

• May bumble, stumble, or heaven forbid, grumble when talking to potential acquirers?
• Can’t stay focused on the important priorities without your continual reminders?
• Is satisfied with status quo, but growth and new ideas are critical to a successful exit?
• Based on their track record doesn’t have the skills to manage the change of transition?

If the answer is ‘Well maybe’, take look at the numbers.  Most team improvement workshops cost less than $15,000.  What if during the workshop the team uncovered a way to improve your $1million cash flow by 5%, that’s an incremental $50,000.  The exit value implication at a 5X multiple is $250,000. And if through the impressive skills, and leadership strength of your team, the multiple improves to 6.5X, the value implication is now $325,000!  And if your deal, like so many others requires an earnout and seller financing, the impact to your pay out could grow, quickly!

Now, why wouldn’t you invest $15,000 and a few days with your team to realize $325,000 or more? 

Get Started Building Your Dream Team

Most teams have not been taught how to be high performing, leveraging the strength of each member and the range of skills in the team, to achieve exceptional results.  In fact, most teams don’t know what bogs them down, gets in their way or how they may even be sabotaging their own success. 

But with the right type of team workshop, a good consultant will help the team transform itself.  Here are 3 critical elements to look for:

1.  An application focused workshop with an emphasis on problem solving exercises.  The primary work of an executive team is identifying and solving problems together.  Zeroing in on this aspect helps the group understand what they are doing well and poorly in this crucial area.
2.  An emphasis on participation, not lecture.  Adults learn through doing and self-discovery, and are motivated to excel when implementing ideas they create and support.
3. Team developed action plans and goals for a specific company challenge as the primary workshop outcome.  A key to a high ROI is devoting workshop time to addressing a real life issue, and solving it. 

The Results to Expect

Just like using a personal trainer will take your workout, golf game, etc. to the next level, so too will investing in your team. It’s not just about learning new skills, it’s about inspiring the team to excel beyond your expectations. It is a proven fact that people set higher standards for themselves than their manager does. So providing an environment where your team can renew their commitment to a level of excellence is a gift to them, and a great investment for you.

Ask you Director of HR for recommendations, or feel free to call us. We are happy to help you find the best consultant to transform your team and maximize your exit value.

Looking ahead

In our next blog in this series we will feature the transfer of your institutional equity (aka your knowledge of the business) to potential successors or your management team.