M&A Insight #3 For Background Screeners

Nugget #3: I am writing to share a gift with you. HINDSIGHT

The ONE Thing You Can Do TODAY to Ensure Business Success Tomorrow

When the time comes to sell your business will you be totally satisfied/happy or frustrated/regretful? Much of what I do with M&A transactions is to ensure owners are set up for success and satisfaction – NOT regret. I want to share the one thing you can do today to ensure business success tomorrow.

The One Thing

A critical element to ensure business success tomorrow is to create and maintain detailed operational and P&L statements. Why is this important? Because as an owner you must know your numbers (ever watch Shark Tank?). These numbers are the life source of your business no matter if you are interested in selling today, tomorrow or never. When it comes time to sell, prospective buyers will want to analyze and understand your business. The more detailed data you have about your business that all tie to your P&L and Balance Sheet statements, the better understanding you and/or prospective buyers will have of the business.

Selling?! Not For A Very Long Time

Having been an M&A intermediary for over a decade I can tell you that 90% of the businesses I have helped to sell never originally planned for a sale. When an owner decides to sell and only has a very broad P&L Statement they are at a major disadvantage. Prospective buyers will ask very detailed questions and will want to drill down to the nitty gritty. Here is the hindsight: without proper financial statements the seller will not have answers for the specifics and will then have to dedicate days and weeks backtracking to reconstruct the missing details and tie those directly to the financial statements.  Not having this information readily available will spook many a prospective buyer and can surely decrease the value of your business.

What’s the difference? Isn’t a P&L a P&L?

A P&L Statement is what truly represents your company. If your P&L Statement is set up where you have one line item that says “Income” and another line item that says, “Cost of Goods”, a buyer will not be able to learn much about your company. Also, most likely the buyer will not be able to properly value your company due to the lack of information provided.

The Necessary Details

When I perform a business valuation, I look at everything from an acquirer’s point of view. Here are some of the items I want to learn about from a P&L Statement: Where do your sales come from? Is your company solely a pre-employment screening company? Do you perform any drug testing or tenant screening? Are you mostly selling the national database or county and state searches or a combination? What % of your income was MVR sales? What about employment and education verifications? Do you do any fingerprinting? What about international searches? Etc.

Which services are your cash cows? Are any of the services loss leaders? What is your gross margin on your county crims vs. your national database searches? A buyer should be able to easily identify all your gross margins by services sold just by looking at P&L Statement.

As your P&L currently reads, how many of these would you be able to answer? Any of them? All of them? Some of them? I know that these questions may seem daunting and many of you most likely would not be able to answer all of them. Starting today, you should set up your operating and accounting systems so you have this visibility, and have it on your desk on the first day of every month.

Details Bring Value & Ensure Business Success Tomorrow

As they say, the “devil is in the details”. However, when it comes to the value of your company, the details are what will bring you value and a quick sale. Although there is so much more involved in creating a competitive business and successful sale, this is a critical start.

What is the one thing you can do today to ensure you run a successful business and help you potentially sell tomorrow? Create detailed financial and operating statements.


About the author: Evan Zatt has been with Berg Consulting Group since 2007 and has led the Mergers & Acquisitions (M&A) team since 2012. Evan has been in charge of helping nearly three-dozen M&A transactions totaling over $250,000,000 in sales. Evan has the expertise to help companies looking to acquire or to divest and achieve their goals. In addition to guiding business owners with all aspects of an M&A transaction, he enjoys helping CRAs with financial management, strategic planning and assessing operations opportunities and challenges.