I met last week with a business owner who had a question about the value of his company. He is hoping it is worth at least $20 million but has no idea if that is reasonable. He founded the company several years ago, operates in a small niche and has grown the company into a market leader for the technology that his company develops. (Writer’s note: The fact that this company is a market leader and the owner is hoping to get $20 million shows the small size of the niche.)  He is hoping to sell the company and sees significant growth opportunities ahead.

Of course, we couldn’t realistically provide him with a good valuation of the company in our two-hour meeting due to the need for more due diligence but we did discuss several topics to determine the reasonableness of his hoped-for value.

• What is going on in the industry in which you operate?
• Who are your competitors and potential vertical integrators?  Are they looking to make acquisitions?
• Do you have any dependence upon key employees, suppliers or customers?
• What operating and financing risks do you deal with every day when you go to work?
• Are your financial statements and tax returns in good order so that a potential buyer could rely upon in them during the due diligence phase?

This is not an all-inclusive list but does provide key consideration that we discussed and the gentleman quickly realized that he needs to address two significant issues to truly position the Company for sale and maximize value. We did learn that the broader industry in which the company operates is set to grow due to at least two factors: the price of a primary piece of equipment needed by customers is set to decrease which will provide smaller companies the ability to acquire the equipment that is needed to run the leading-edge technology provided by our client.

We explained that he probably will not get $20 million today (unless the one potential synergistic buyer might be motivated to pay that amount) although we can provide him with a good estimate of value and help him track the value of his company over time to help him decide when is the right time to sell and how much the company is worth.

When is the Right Time to Sell My Company?

The answer depends on:

• (a) how much you want and
• (b) if and how you have it positioned for sale.

Today may be a bit early for this particular owner but he is getting out in front of the issues before the industry growth that he foresees occurs. By taking care of two issues that could be a snag in a potential buyer’s due diligence and agreeing to let us help him establish reasonable estimates of value and position the company for sale, this owner may get his payout sooner rather than later.

Give me a call (615-309-2264) or contact me if you have questions about the valuation of your company or preparing your company for sale.