Each year thousands of middle market companies are sold to other entrepreneurs, corporate buyers or buyout firms as they face succession and estate planning issues.
For most owners of privately held middle market companies selling a company is a once-in-a-lifetime event. Frequently, these owners do not fully recognize the value creating elements within a business enterprise. As a result, many of these companies will be sold for less than their potential value.
The valuation of a business is a complex issue. Scores of different factors influence the final value. However, I believe there are five key steps the owners of a privately held business can and take to dramatically improve the value of an enterprise in an eventual sale.
From the first days of start-up until the closing of a sale, the five key steps remain the same. These steps are:
1. Develop a defensible market position
2. Build a management team
3. Reallocate resources to the best use
4. Improve the skills and quality of the work force
5. Eliminate all contingencies
Each of these steps and related issues will be discussed in future posts.