Case Study: Business 1
Owner approached Gokul at a conference he was speaking at. Owner was intending to retire within two years and wanted to work together to integrate effective value-drivers analysis in the transaction. We started by setting a baseline evaluation on all 6 Value Drivers in Owner’s company and went from there. In this case, we served as consultants and facilitators for increasing the value of the company for the business listing.
In this case, we were trying help the Owner increase the value of his business so that he could retire comfortably. However, increasing the value of Owner’s business required a precise and methodological review of his business.
In order to understand the best way to approach the objective, we started with an effective and detailed valuation of Owner’s company. From there, we identified red flags and implemented fixes to address them. Then, we created a custom RBA “1, 3, 5” Plan for Owner to implement, which involved identifying one initiative, three objectives, and five action items under each objective. This left the business owner with 15 discrete action items to engage.
After identifying discrete action items Owner could take to improve the value of his business, we started looking at ways to cut costs by decreasing excessive or unnecessary expenditures (i.e. identifying and eliminating “cost creep up”). We utilized the “1,3,5” Plan methodology for identifying and deploying these solutions.
Owner’s business faced several challenges to achieving marketability. Even though Owner’s restoration business was generating millions of dollars in revenue, 2 of his value drivers were significantly in the red. First, his profit margins were significantly below industry level and very slim. He was operating at an 8% profit margin compared to as high as 18% to 20% in the typical marketplace. Second, he also had a poor HR structure, with many job descriptions overlapping. This caused a great deal of confusion within his operations, which also struggled from the lack of a discernable marketing strategy.
We utilized a systematic and detail-oriented approach to valuation. With this method, we were able to identify ways Owner could improve the value of his business and facilitate desirability among potential buyers. With the “1,3,5” Plan, Owner was able to bring clarity and accountability to his HR team. We also helped Owner streamline his marketing approach by supporting him with one of our preferred partner vendors to jumpstart a new marketing plan. As a result of this improved marketing strategy, he was able to reduce the size of his marketing team workforce by one full-time worker, resulting in a significant profit margin increase for the company.
Within 24 months, we increased Owner’s profit margins from 8% to 17.5% – effectively doubling the value of his business in just two years. Additionally, it nearly doubled the value of the business listing from $1.2 million to $2.35 million.
The specific goal of this project was to increase Owner’s margin from 8% to 18%, and we started by cutting unnecessary costs and inefficient investments.
Case Study: Business 2
In this case study, the business’ owner, came to a conference to hear me speak on my Signature talk, “Why, When and How To Sell Your Business” after having listed a business for sale with a national but general business brokerage. The business went unsold for an entire year, and Owner came to us to help identify a buyer. We were engaged as brokers who also made substantial efforts to improve the marketability of the business listing. From a broad perspective, we had to work with bankers, investors in the marketplace, and the business owner to achieve our goals.
The client wanted to sell his restoration business for a great price, and we were trying to help him find a buyer for his company. Owner’s business had only attracted one potential offeror over the prior year despite offering substantial investment value.
To create a more compelling value statement for investors, we analyzed the unique benefits of Owner’s business and identified what set Owner’s company apart.
We utilized a benchmarking methodology called the 6 Value Drivers that was effective in showing the strengths and value of Owner’s company in a unique and focused way. We took these metrics-driven value arguments, performed some re-branding, got financing, and sent information about the listing only to our internal database of buyer contacts. We also used a valuation methodology that we had a great deal of prior experience in, so we were able to price the investment properly. Additionally, we used extensive documentation to show the value of the business’ owner’s exceptional systems.
We identified the three key value propositions for Owner’s business (hands-off leadership structure, operational efficiency, and large financial margins) and analyzed them against competitors to establish performance benchmarks. The key to success in this regard was knowing the restoration business very well rather than over-generalizing based on more baseline industry standards.
As it turned out, Owner had an excellent HR and leadership organization within his company. This allowed Owner the opportunity to take extended periods of time away from work without missing a beat – a valuable benefit many business operators hardly ever enjoy. Owner’s business also had excellent operational processes and large margins. Focusing on these three benefits, we drafted a solution for improving the marketability of Owner’s business.
Owner’s initial valuation by the first company was completely off as a result of not fully understanding the restoration business industry. They treated his business no differently than would a bakery or hair salon. We completely revalued his company from the ground up with the restoration business industry in mind and uncovered exactly where his revenue was coming from. For example, we discovered whether the majority of revenue was from mitigation services vs construction services and what the benefits of that particular service mix had to a potential buyer and that had not been considered prior.
We did not encounter any major problems in our phase of managing this transaction, but the challenges highlighted by the client prior to our taking on his business in this case study reveals the importance of depth of knowledge and the roadblocks presented by over-generalizing the business’s place in the marketplace. We overcame the challenges in marketability created by prior brokers when they treated Owner’s business like just another transaction rather than a uniquely valuable investment.
After we took these initiatives, the business was sold within just four months. We were able to close even faster than the typical timeline for business sales!
After just a few months, Owner went from having no buyers for his business to selling it to someone who made a full price offer This was all a matter of improving the precision and detail of the investment valuation and marketing. This case study is very typical of the systematic manner in which we approach these types of jobs. We have been able to refine this approach over time, and it is able to produce consistent results at this point.
Case Study: Business 3
Owner came to me with a business that was generating $28 million in sales but only $1.8 million in profit with a face valuation of $4 million. Owner was concerned that his business was unsellable, and we helped him increase his valuation. My role was to create and implement an exit plan, which is “like a business plan on steroids. We worked with the business owner, his workforce, and just a few potential buyers to achieve our intended result by utilizing a number of our preferred partners to support the exit plan implementation. We used the Seven Value Drivers method for improving Owner’s investability with an efficient, detail-oriented approach. Frankly, we acted as consultants a great deal more than we acted as brokers in this case study but this is not uncommon. This makes our services more relationship-based than transactional.
Our key goal was to establish a clear exit plan in place of a growth plan for Owner’s business, which required improving structure and valuation.
After identifying the key goals of the exit plan (specifically: improving margins, improving HR structures, and decreasing owner involvement), we streamlined operations. We reduced the seven active branches of Owner’s business down to just four and reduced his workforce from 125 people to 75 people. We put qualified managers in charge of each branch that allowed Owner to be more hands off and greater accounting discipline to make the business more investible.
Owner had a great business plan and growth plan, but Owner needed an exit plan based on the Six Value Drivers to get the structure his business needed to be understandable to investors.
We addressed several challenges in this case study. First; Owner’s costs were extremely high, which ate into his margins. He also had a poor HR and leadership structure that was preventing efficient growth. Additionally, Owner was working 80-hour workweeks, and his operations needed to be amended before he could step away.
To overcome these challenges, we created and imposed an exit plan for Owner’s business that focused on:
● increasing margins by reducing work force and real estate associated costs for 3 locations
● getting Owner less involved in the business
● documenting all of Owner’s processes so that investors can understand his business.
We documented all of the business accounting, leadership, and operations extensively, which improved buyer understanding and confidence in the market.
Eighteen months passed between the first discussion of this project and anticipated acceptance of an offer on Owner’s business. By using a systematic, data-driven, detail-oriented approach, we were able to address all of the challenges in this case study quite quickly.
The end results of this case study were very successful. A third-party evaluation came in on Owner’s business at $9.8 million just 16 months after we started implementing system improvements. Altogether, that added around $4 million to Owner’s business value in months.
As a result of our precision focus on increasing the 6 Value Drivers in this business, we only needed to pitch to 3 potential buyers before expecting a letter of intent offer on the business in the range of $9 million to come in. When you know the restoration business industry you don’t have to parade your business to 30 potential customers. Our average is 6 buyers before an offer comes in.