1. Allow time to position the company
  1. Sales management
  • Slow growth is better than fluctuating sales – manage sales growth.
  • Margins are important:
  • Aim for a 50% gross profit margin (less if substantial sales are through a distributor. If current gross profit is less than 50%, examine components of cost of sales, and evaluate a price increase. Increase prices by the rate of inflation (3-5%).

  1. Income statement management
  • Call us for our recommended income statement format (POV-1).
  • Control expenses
  • Best to eliminate or at minimum track (create an “audit trail”) for all “owner perks.”
  • Focus on EBITDA (Earnings before interest, taxes, depreciation & amortization). Target 10% or more!
  1. Balance Sheet Management
  • Receivables and Payables are linked. Manage Days sales outstanding and days payables outstanding. If A/R takes 45 days to collect, then A/P need to be 45 days.
  • DSO = (Accts Rec / sales) X 360
  • DPO = (Accts Pay / purchases) X 360 
  1. Control or reduce bank debt
  • Bank debt must be paid in full when the transaction closes. If bank debt is more than the cash payment at closing, the seller must make up the difference. This doesn’t happen often, because most buyers back off because of this issue before approaching closing.
  1. How companies are priced.
  • EBITDA multiples
  • Net Asset multiples
  • Present Value of future cash flows
  • Other recent similar transactions
  • Percent of Sales
  • Potential? Occasionally but rare!

 

 

  1. Time necessary to complete a sale
  • 6 months to 1 year (some more—some less)

For more information, give us a call! 910.793.9224

 

Download this article as a PDF: POV_32 Know when to sell…