Middle Market M&A Link Roundup: Issue #12

Saddle up! We’ve been riding the Interwebs on your behalf, searching for golden nuggets of small-business wisdom to share.

All kidding aside, following are some of the best articles we’ve run across on selling a business, buying a business, business valuation, building value in your business, and other helpful advice from the frontiers of middle market M&A. Giddy-up!

The 5 Phases of Cash Flow

The road to profitability can be a long one. It also tends to come with a number of unanticipated twists, turns and obstacles along the way. Even when you have built a profitable business, many owners fall off the path and find themselves in the entrepreneurial nightmare known as a cash crunch.

This article outlines five distinct phases of cash flow that most small businesses experience as they grow. The ability of your business to generate consistent cash flow will be a big predictor of how it will be valued by buyers, and how easy it will be to sell.

Take-away: Consider your business unsellable until cash flow has reached phase five.

Article: The 5 Phases of Cash Flow

Why you need to meet with an M&A advisor. Immediately!

We like to say that if your business doesn’t excite a good M&A advisor, then you need to find out why. If there’s anyone in the business world who has anything close to a crystal ball and can see what the future may hold for your business, it’s the M&A people.

This article outlines 14 questions that investment bankers and M&A advisors are uniquely qualified to answer about your business. Regardless of when or even if you plan to sell your business, getting this type of perspective on your business today can be invaluable.

Take-away: Talk to an M&A advisor or investment banker years (not months) before you think you may need them. You’ll get plenty of useful information you can use right now.

Bonus: This study shows that working with M&A professionals adds value for 100% of sellers.

Article: Essential Strategic Input for Management – Meet an Investment Banker

Want to exit your business? Hit the gas, not the brakes.

We’re all familiar with short-timer’s syndrome — that tendency to pull back when we know a certain endeavor is nearing its end. When it comes to exiting your business, however, prepare for a race to the finish.

Written by a business psychologist, this article discusses why taking control of how and when you exit your business is critical to a successful outcome. Your job isn’t to wind down or pull back. It’s to position your business for continued success under new ownership.

Take-away: Exiting your business requires that you pay attention to both logic and emotion. Get your head in the game and take action. “Because business-as-usual is a fast road to decline.”

Article: Why You Should Wind Up, Not Down, Before You Exit Your Business

How to pump up your EBITDA

When it comes middle-market business valuation, the most common method buyers will use is a multiple of EBITDA. With that in mind, many business owners want to know how they can make EBITDA look better prior to selling.

This article illustrates a number of common ways to increase EBITDA. This isn’t about smoke and mirrors, mind you. It’s about understanding basic accounting, and the relationship between your Profit & Loss Statement and Balance Sheet.

Take-away: Don’t be so quick to increase deductible expenses and minimize taxable net income. Look at how classifying expenses (deduct v. capitalize) affects EBITDA, as well as the value of your business.

Article: EBITDA Engineering Before Selling a Business

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