Increasing your EBITDA Multiplier

One of the greatest American generations, the Baby Boomer’s are getting ready to retire from their businesses.  Many questions arise in understanding the value of their legacy… What can I sell my business for and how can I increase the value before making this move?

While bottom line profits will certainly increase the value of your organization – the following “3-prong” approach can change your industries EBITDA multiplier, creating a massive jump in your firm’s value.

Talk with any mergers and acquisition firm and they will say, “The greatest opportunity to increase the EBITDA Multiplier in any industry is to follow this 3 step formula:

Sales Systems & Processes – Creating a sales system and process which is trackable, measureable and predictable.  It must be scalable, repeatable and have a track record that is memorialized with success.  Your sales people should follow a step-by-step process for all 7 aspects of the sale.  Nearly anyone should be able to walk into your organization, pick up the sales system and process “playbook” and make sales in a predictable manner.  Prospective buyers for your business will dramatically reduce the multiplier if you as the owner are responsible for sales or even the sales “relationship.”  I find many businesses are structured this very way.

Business purchasers have to know that when the deal closes the income stream, employees and processes put in place by the past leaders will create the same (repeatable) results.  And, in my experience the sales department is nearly always the last place businesses look to build a repeatable system.  How important do you think the predictability of gross revenues are to a prospective buyer?

Dynamic Culture – Put in place a culture which creates employee ownership decision making and an ambitious workforce.  What would you rather own; a business which has a dynamic workforce where the people are focused on the vision with very little turnover; Or a company who has struggled to create a high performing environment?  The answer is obvious, right?  So how does a long standing organization build or change their culture?  To many business leaders this looks like a daunting task, and it can be.  It can be daunting if the leader or leadership team isn’t willing to change, adapt or evolve.  Culture derives from the very top of any organization.  It can’t be delegated to upper or middle management or to the HR department.  I’ve witnessed business leaders who simply can’t seem to grasp the vision of their organization; some who just don’t or won’t move forward as “change” is an unknown for them.  Oftentimes these leaders are stuck in the past; in the past processes that “used” to work; in the past of “this is how we’ve always done it around here.”

Creating a culture which thrives is not that hard.  Follow a specific plan of creating the vision, changing the mood, build recognition, reward and incentive programs that produce results, build a workforce which in empowered to make critical decisions, a workforce which is built and taught how to lead and be responsible for each of their duties.  Adapting a work environment is really quite simple when done correctly.   Great leaders teach, they don’t tell.  Great leaders grow people. Great leaders let go of their need to let others know by allowing people the opportunity to discover.

Removing the Leader(s) – Reducing the need for the owner or CEO to oversee the day-to-day operation is the greatest builder of your EBITDA Multiplier.  I used to say to my managers, “I can tell how well you’re doing your job by how your department operates when you’re not there!”  It’s vital that your business run without the direct influence of the owner.  The most valuable businesses operate like the Swiss transportation system.  Business buyers are looking for this very thing in your organization when you expose it to the marketplace.

Buyers ask the question, “What will change when we remove the leader(s)?  Will the revenues drop?  Will the work environment change?  What systems and processes will we need to change after we close?  How long do we need to keep the business leader(s) in place so that the ownership transition feels seamless to both the customers and the employees?  And like the Swiss transportation system, wouldn’t you prefer to own a company that is on-time, efficient, has structure and systems that produce superior results?

Is your company a high performer, ripe for the picking?  Well run companies don’t need a lot of “tweaking” – they oftentimes need small injections of sales systems and processes and cultural adrenaline in the right place.  The question I have for you is, “Is extraordinary in the vocabulary of all your employees?”  If you can answer this question with a resounding “Yes” then you’ve created a top tiered company which will sell at the highest EBITDA Multiplier in your industry.  Let’s get your multiplier jacked up as even an increase of 1 or 2 could mean the difference of millions of dollars in your pocket.

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Eureka Performance

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