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SECURITY SYSTEMS NEWS SEPTEMBER 2011 www.securitysystemsnews.com GUEST COMMENTARY 15 Six things you can do to increase the value of your company L By Peter Wright IKE THE OLD SAYING, "beauty is in the eyes of the beholder," the value of a company means different things to different people. A word of caution before you cash out and move on, however: A company's ultimate value is what a seller is will- ing to accept and a buyer is willing to pay. The question you should ask yourself is this: "Does the offer meet my goals Peter Wright and is it fair in regards to current market conditions?" Having acted as an advisor and personally been involved in the sale of my own security integra- tion company, here, in my opin- ion, are the top six value drivers in order of importance. 1. Earnings—Whether you refer to it as net earnings; earnings before interest, taxes, deprecia- tion and amortization (EBITDA); or profit, it is still the bottom line. When I ran my integration business I used to say: "Revenue is vanity, cash flow is sanity and profit is reality." You have to have a profitable company to build real, tangible value. 2. Recurring Revenue—Whether it is monitoring contracts, service contracts or a repair-and-parts business, a buyer wants to know there is a base to build on. Do not underestimate the value of a writ- ten contract. Specifically, make sure as much of your revenue stream as possible is supported by a written contract, preferably containing an automatic renewal provision. You should also make sure that there is fair protection or indemnification in the contract to protect your business. 3. Management Team—Buyers are leery of buying a company that doesn't have a strong team. They will understand if there are certain areas that need to be built upon. Most buyers understand that the seller/owner will eventually leave, whether it's day one, in six months or three years. As the owner of the business you should address who is key to your team in sales and operations. For most small- to medium-sized businesses, the accounting function is one that is replaced easily, but the buyer will need to have confidence that your historical operating results and related financial statements have been prepared consistent- ly and appropriately. Consider including or rewarding your key managers from a successful sale of the company by granting them stock options, phantom stock or a retention bonus. Many deals have fallen apart because the owners announced the deal to their loyal Untitled-1 1 management and the team walked away to compete on their own. 4. Customer Base—Buyers place a premium on the customers you have. Do you fill a "strategic hole" for the buyer, whether it's a prod- uct line or geographically? Buyers will also be interested in your his- torical sales growth and mix, and tend to be concerned about cus- tomer concentrations over 8- to 10-percent of your revenues. 5. Revenue—I just said it was vanity, right? Well, the reality is that most strategic buyers, and almost all financial buyers feel more comfortable about acquiring you if your company has over $10 million in sales. There are always exceptions, of course, especially for what buyers consider tuck-in acquisitions within a geographic market, service offering or prod- uct line. 6. Establish an Advisory Team, Now—This group should include three types of professionals: an attorney, an accountant and an investment banker. One of the biggest challenges an owner can Peter Wright is managing director, Anderson LeNeave & Co. ideas for life W 469 face is responding to an unsolic- ited offer to buy their company. Take the time to properly build the value of your company by focusing on the value drivers listed above, and create a team to help advise you through the process. SSN N V - W We've got it all covered. Panasonic offers surveillance system solutions with superior performance and cost-efficiency for virtually any application. Configure the system that best meets your specific needs from the most comprehensive line of IP, analog and hybrid products available. Our latest innovations include i-PRO SmartHD cameras and recorders with automatic real-time face detection, and UniPhier® large-scale integrated chips to assure the highest levels of integration. They're advancements that will make any system smarter and more cost-efficient. Any way you view it, Panasonic has got you covered. see more with your smartphone Panasonic System Networks Company of America Surveillance, Monitoring & Video Imaging panasonic.com/security 1/13/11 9:10 AM