■ Financial Services
■ Financial Services
strong financial controls and systematic procedures in place .
In most instances , our recommendation to sellers is to undertake a Quality of Earnings ( Q of E ) report , known as a sell-side Q of E . This is an audit of the businesses financial practices .
Just know that all prospective buyers will invariably conduct their own Quality of Earnings evaluation . By proactively initiating this step , sellers are well-positioned to significantly streamline the entire due diligence process , because they will have already addressed any concerns . Prospective buyers will have confidence in a company where few or no discrepancies are found and be willing to pay for the value .
Concentrations – Vendor / Customer – High dependency on one or a few key customers or suppliers can be detrimental to a business ' s valuation . Buyers are looking for the sustainability of relationships and earnings . Handshake agreements from years past do not inspire the same confidence in a buyer ’ s eyes as it does the owners . To mitigate this risk , owners should diversify their customer or supplier base whenever possible and establish formal agreements with key partners .
In industries where concentration is unavoidable , contracts and consents with key customers and suppliers will give greater confidence to potential acquirers .
You and the Management Team – Businesses that command the highest values are those that are not reliant on the owner . Strong management teams that can effectively run the operation are a significant asset . Preparing individuals or teams to take over the business may involve months or even years of grooming .
Q : You mentioned owners have options when selling their businesses . Could you elaborate ?
When selling your business , the recommendation is to undertake a Quality of Earnings report .
Oatway : In the past , selling a business often meant retirement , a step many owners are not ready to take . Today , owners can pursue various avenues . They can sell and move on , engineer a partial sale with a Private Equity firm to extract wealth while continuing to manage the business , or sell to a strategic or private equity buyer and stay involved for a specified transition period . These options reduce risk while allowing owners to remain engaged in the company they love .
If any of these areas are not operating at their peak potential , the value of the business will be reduced .
Q : Where should an owner begin ? Oatway : Open-mindedness and a willingness to shift from “ business as usual ” to a new perspective are the keys to success . We find that owners are often so focused “ in their business ”, that they lose sight of where their business stands in the broader scope . We recommend owners undertake a self-due diligence process – a comprehensive assessment of every operational aspect of the business . They can do this themselves with the management team , or bring in an outside expert that can provide a third-party perspective .
This exercise provides a deep understanding of the company ' s current state , measures the business against accepted Best Practices , identifies areas in need of improvement , and establishes goals for remediation . While it can be challenging for owners to initiate change , the right guidance and education can set them on a path to success .
Photo : Getty Images / iStockphoto / chombosan
About Steve Oatway
Flexibility to make changes and open-mindedness are the keys to success .
Photo : Getty Images / iStockphoto / Melpomenem
Steve Oatway is a Principal at The DAK Group , a leading investment bank specializing in middle market , privately held companies . Steve heads up the Strategic Leadership practice where he works directly with business owners assessing their company for improvements needed to generate the greatest value , then creating and implementing a plan to do so .
Contact Steve at soatway @ dakgroup . com , or 609-937-9545 . Steve Oatway is a Principal at The DAK Group , a leading investment bank specializing in middle market , privately held companies . Steve heads up the Strategic Leadership practice where he works directly with business owners assessing their company for improvements needed to generate the greatest value , then creating and implementing a plan to do so .
Contact Steve at soatway @ dakgroup . com , or 609-937-9545 .
November 2023 COMMERCE 13