FINANCIAL SERVICES
FINANCIAL SERVICES
Delving into the Value Quest
“ Three Proven Tips for Business Owners Eyeing Legacy or Exit ”
By Diane C . Walsh Editor , COMMERCE
The economy is in a pivotal period today especially for business owners running medium-sized privately held companies . The pandemic , although far in the rear-view mirror , created disruption that has spurred owners into reevaluating their personal and business goals , and the path to achieve them .
A recent conversation with Steve Oatway , a Principal at The DAK Group who leads the Strategic Leadership Practice , sheds light on the prevailing trends and challenges that business owners face in this evolving landscape .
Q : What overarching theme are you observing among business owners today ? Oatway : We are witnessing a surge of business owners who are at a crossroads contemplating the future of their enterprises . They grapple with the question of whether to further invest in their companies , transition to the next generation , or embark on the path of selling their businesses to pursue new chapters in life .
Regardless of their chosen course , the common thread is a desire to maximize the value of the companies they have painstakingly nurtured and built . They understand the need for change but often find themselves unsure of where to start , skeptical of what lies beyond the sale , and many are unaware of the spectrum of options available to them .
On the flip side , we are seeing both strategic and financial buyers looking to acquire well-run businesses . Buyers today are being overly cautious and are extremely risk adverse – conducting a high level of Due Diligence . With this knowledge , it behooves business owners to be preparing the business through the eyes of a buyer . This requires looking at their business through a different lens , and identifying areas that could be valuable to buyers . This is not just a best practice but truly maximizes and sustains value when the transaction reaches the due diligence process .
Q : When you speak of “ maximize the value ,” what precisely do you mean ? Oatway : The concept of “ maximize the value ” pertains to achieving the highest possible worth for a business , which is ultimately determined by what a prospective buyer is willing to pay for it . Drawing from our experience with over 750 transactions , we possess valuable insights into what middle-market company buyers seek out , value , and are willing to pay for . Often , what the buyer cares most about is not what the owner has put an emphasis on or has overlooked completely , and therefore cannot earn the maximum value for the company . Ironically , the factors that consistently drive high valuations when selling a business align closely with what is essential for running
Steve Oatway , Principal at The DAK Group
a successful and resilient business , regardless of whether it is transitioning to the next generation or preparing for sale .
Mergers and acquisitions require a high level of due diligence for risk adverse companies .
Photo : Getty Images / iStockphoto / Robert Daly
Q : What aspects of their businesses have owners typically overlooked ? Oatway : The owners we have been working with generally have an intimate understanding of their industry and have dedicated their lives to servicing their customers . However , when a potential buyer evaluates a business , they use a different lens , focusing on where future value can be generated . Some frequently neglected areas include :
Financials – this may sound crazy , but many owners maintain outdated financial practices , some continuing what they did 30 years ago – sometimes relying solely on managing to their bank account . The Best Practice is to have monthly reporting , an annual budget , and using an accrual system versus cash . A simple tax return will simply not suffice . Today , Buyers demand accurate financial statements prepared according to Standard Accounting Principles . They need to have absolute confidence in the accuracy and veracity of the financial picture being shared . The financial statements must be dependable , accurate and available in a timely organized fashion . In addition , there should be
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