Not Ready to Sell? Terrific. Now’s the Time to Talk.

But to prospective clients?

Not so much.

Because the advice seems self-serving, not to mention deceptively simple.

So, what is this secret we speak of?

Well, based on more than 25 years’ experience and nearly 400 deals completed, we know that the key to success is to begin a dialog – at no cost to you – with a knowledgeable and experienced mergers and acquisitions advisor long before you’re ready to sell.

We know. Your malarkey meter is redlining.

But if you’ll suspend your disbelief for a few minutes, you’ll understand why.

Questions Beget Answers. Answers Beget Strategies. And Strategies Beget Value.

When we first meet with prospects, we ask a lot of questions. Because the answers inform, among other things, growth, opportunity, risk, and goals and objectives. And when married with sector specific M&A conditions and trends – insights an experienced advisor can provide – an actionable mid-to-long-term strategy to increase the likelihood of a successful exit emerges.

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What kind of growth, if any, are you experiencing?

If you’re growing at more than plus/minus 30% per year, you might think it’s the perfect time to sell. But the reality is that buyers will rarely adjust their multiple upwards enough to compensate you for “hyper-growth.” Better to wait for growth to taper and earn a more easily justifiable “growth” multiple that can be applied to substantially higher revenues and earnings.

What, if any, new initiatives are you considering to spur growth?

All growth is not valued equally. For example, the value of adding a new location in another state can exceed the value of adding one in your existing footprint, because it demonstrates your ability to expand into new markets with different characteristics.

What about adding complementary service lines? Such strategies often seem to make a lot of sense. But buyers are a fickle bunch. Many prefer a narrow focus more than revenue diversification. While combining home health and hospice, for example, is an “easy” extension, for some, expansion into Medicaid reimbursed paraprofessional services may be a bridge too far. For them, such added revenues, at best, don’t add much value, and at worst, may even detract from it.

Have you tapped into any third-party data that can reveal how you stack up against your competitors?

Performance measures such as gross profit margin, payor mix, service mix, revenues per employee, length of stay, cost report data (home health and hospice), days sales outstanding, net margins, and more enable advisors to quickly zero in on where you outperform your competition or, perhaps more importantly, fall short. This analysis illuminates the steps you could take (that may not bear results for a while) to increase your value.

Notably a knowledgeable advisor may already have this data on hand.

The Braff Group, for example, has access to numerous performance databases.

Moreover, we have been tracking and analyzing financial and operating performance data for our clients for more than 25 years. We have literally thousands of sector- specific data points that have been scrubbed to yield meaningful performance benchmarks.

Are your revenues sticky?

Buyers want to know if the revenue streams they acquire will continue post-transaction. Is there a sales team in place to prevent erosion? Are there concentrations that, if lost, could greatly diminish profitability? Are revenue sources referral or consumer driven – the former being more valuable because of their predictability. Any initiatives you can take to make your revenues stickier will pay off handsomely in increased valuation.

Are your financials on a cash or accrual basis?

Right off the proverbial bat, if your company is growing and you’re on the cash basis of accounting, your revenues and earnings are almost assuredly understated.

Notably, there is some measure of subjectivity in accrual- based accounting. Issues regarding revenue recognition, establishing reserves for uncollectibles, vacation pay, capitalization guidelines, and more can have a substantial impact on reported revenues and earnings. Giving buyers the opportunity to turn cash-based financials to accrual enables them to take the most conservative approaches to these calculations which can lower profitability and ultimately, valuation. Better to take the time to engage a financial adviser to convert to accrual a year or two before going to market.

If you have multiple service lines, are they blended together or kept separate for financial reporting?

It might be easier not to separate service lines, but it can be deadly if the profitability and/or attractiveness of each are different. In such cases, higher valued lines can easily be valued at the less attractive line’s comparables. Moreover, while less desirable, sometimes more value can be extracted by selling lines to different buyers. As such, separate reporting provides the greatest flexibility.

Can the business prosper without you?

If you don’t have an obvious succession plan or haven’t invested in middle management infrastructure, you’ll want to do so – even if it cuts a bit into your profitability – because you’ll earn a higher multiple as it reduces the risk that the business will unravel post-transaction.

Do you still enjoy what you do?

This question goes to the heart of why many owners decide to sell – burnout. And quite often, no amount of go-forward opportunity is enough to warrant holding on. We know. Not an easy question to answer, but nevertheless important to discuss and reflect upon.

Do you have any other business interests you might want to pursue?

If you do, the calculus regarding the sell vs. hold decision becomes a question of return on investment. Which is better? Increasing the value of your existing business? Or cashing in and redeploying some or all the proceeds into a new opportunity with even greater prospects.

Do you have children with the interest and ability to take over the business?

If you’ve managed to squirrel away enough money over time and don’t need the proceeds of a sale to fund your interests in retirement, it’s entirely reasonable to forgo a deal to keep the business in the family.  

But if you’d like to cash in but still give your kids the opportunity to be in the business, there are several ways to have your cake and eat it too: selling the business to your kids in the form of an installment sale that can be funded from the profits of the company; recapping it with a modest amount of debt to finance a sizeable distribution to you without overburdening the firm with risk; or selling the business outright and using some of the proceeds to fund a start-up for the kids outside your non-compete area.  

Regardless, such a decision requires planning, and equally importantly, insights regarding valuation.

Are you nearing the point where the Psychic Value of the Incremental Dollar is falling?

Developed by The Braff Group, this concept is best explained with a simple example. Take Bill Gates: the first million dollars he made assuredly held tremendous value to him, both financially and psychically.

But how about a million today? Not so much. So, once the psychic value of any increase in sale price begins to decline, the ROI of holding on for a higher multiple or another year of growth begins to fall off as well. 

Moreover, the downside risk of changes in buyer preferences, unfavorable macroeconomics, reductions in reimbursement, professional liability, etc., can easily outweigh this diminished return. So, monitoring this with input from a knowledgeable advisor regarding M&A market conditions is paramount to optimize timing – for you.

Yup, a lot of questions.

Questions whose answers will change over time, right along with countless external variables that inform which sectors are hot, which are not, and which are heading in either direction.

So, even if you think you’re three to five years or more away from a potential sale, it’s never too early to begin a dialogue with an experienced mergers and acquisitions advisor on a regular basis. Like, you know, a nationally recognized firm that’s been around since 1998 and has closed nearly 400 deals like yours (just saying). Their input and guidance can ensure that you’re on the right path, at the right time, to get the best deal.

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Is Now the Right Time for You to Sell? Talk to Our Managing Director in Your Area.