Imagine going through 10 merger and acquisition deals? The M&A process is daunting enough doing it once! However, the lessons I learned, and so can you, from a podcast interview I did with Arlin Sorensen, will help steer you through it, whether it’s your first time or 15th. Arlin has compiled what he believes are the four key areas to focus on in during the exit process, and shares his insights on how to ensure the deal is structured the way you want.
Why Acquiring Businesses Makes You Stronger and More Valuable
In the technology sector — and managed IT in particular — mergers and acquisitions are pretty common practice. Inevitably, one company will need what another has and either a deal will be struck where two companies merge or one company will simply incorporate the other into its pre-existing structure. Whether you’re in the tech industry or not, you know mergers and acquisitions can help you grow your business.
As is true in any industry, a buyer wants a company that is self-sustaining and has limited risks. If you’re lacking the people required to transition the business properly or if you’re trying to wear too many hats at once, the integrity of the business suffers. Buyers will value your business lower as well because they see the value in you (as an employee) but recognize the business will need a new accountant or manager or whatever other key positions remain vacant because you’re picking up too much of the slack.
Using the M&A process as a stop-gap measure to build your business is also a good idea. If you need the tech, space, customer list, etc., buying or merging with another company can help you move your business forward. If your brand is suffering, you can use this as an excuse to re-brand yourself and thereby give your enterprise a second kick at the can.
Personnel Isn’t Personal, It’s Just Good Business
Arlin used his acquisitions to gain key personnel he was lacking. This allowed him to prevent serious issues cropping up down the line, particularly in the sales process, and also enabled him to grow his business with the added manpower and know-how.
In his very first acquisition, Arlin gained an invaluable CFO who promptly righted his books and helped him see why clear and above-board bookkeeping was vital to the business’ success and value. Not only did this allow Arlin to focus in on the key areas he needed to so he could continue to grow his business, it also sped future M&A processes up because there was far less guess work and back-and-forth about numbers and findings since the paperwork was in such good order.
None of this was done by accident. Arlin is a very focused business owner who knows what he wants and goes after it. He planned his acquisitions to fill gaps in his company and mitigate risk. This brings us to the main point of the podcast today:
Plan Everything Like You Want to Sell the Business Tomorrow
This seems so obvious when we sit back and think about it, but most of us aren’t planning… for anything. We’re not planning for when we sell the company, we’re not planning for when we retire, we’re not even planning for major market shifts half the time. This has to stop.
From day one, you should have a plan in mind for building your business from the operating agreement up. If you don’t, you should start now. Seriously. It’s time to invest in our businesses in a different way: we need to learn what our financials mean and how our market really works. What drives the area you’re in? Do you know what gross profit margin, EBITDA or even free cash flow is? Where does your revenue come from and who do you owe money to?
It’s a different scenario when you work for someone else. When you are your own boss (and everyone else’s), you need to know what drives the value of your company and what keeps it solvent in the current market. The more you know about your business, the better you are able to run it and plan for eventualities — including the sale of your company and your retirement.
Arlin’s Four Key Plans on Building a Business to Sell:
- Legacy Plan — What’s the end game you’re trying to accomplish? Look at the finances you need to set yourself up when you no longer earn a paycheck.
- Life Plan — How are you going to live the hours that are not in the workplace and make them meaningful? Do you have enough work-life balance?
- Leadership Plan — How am I going to invest in myself as a leader? How am I going to invest in the key people around me that I need to help me succeed and achieve what I want for my legacy?
- Business Plan — How are you going to operate your business to drive toward the legacy you want to have?
If you don’t have the answer to these questions, you should start pondering them today. If you’re not sure where to start, seek outside help. Peer groups are awesome for that. We have some resources on here as well if you need some more information.
Don’t fall into the old adage of “if you fail to plan, you’re planning to fail.”