Buyers tend to pay premium prices for companies that have developed realistic strategies for growth. This growth strategy must be communicated to a potential buyer so that the buyer can see specific reasons why cash flow (and the business itself) should grow after it is acquired.
The growth strategy is illustrated in pro forma statements that are used by buyers (and their investment bankers) to create a discounted future cash flow valuation of your company. Since future cash flow is based on estimates of future growth, having a realistic growth strategy can be vital to reaping top dollar for your business.
This strategy can be based on:
• Industry dynamics;
• Historical growth;
• Increased demand for the company’s products (due to population growth or other factors);
• New products and new product lines; and
• Expansion through augmenting territory, product lines, manufacturing capacity, etc.
Don’t expect buyers to appreciate the growth opportunities your company offers unless you can speak convincingly about it. First, a buyer will not understand your business as well as you do, and will not likely see its hidden opportunities. Also, if a buyer does discover an opportunity that it believes you’ve ignored, that buyer will likely attempt to take advantage of that knowledge during purchase price negotiations. It’s a good idea to demonstrate your awareness of the opportunity.
Even if you plan to sell tomorrow, you should have a written plan describing future growth potential and how that growth can be achieved based on the areas listed above, as well as any other catalysts for future growth unique to your business. It is that growth plan, properly communicated, that will help attract buyers. If you’re not a short-timer; meaning that you and your business have a few years or more before an expected sale, it is worthwhile to create more than a growth plan: consider creating a strategic business plan.