Tips To Improve Your Business Valuation Before an M&A Deal


Your business may have been around for a long time. However, its direction remains ambiguous. Growth prospects are unexciting despite the steady cash inflows. Consider expanding or selling it.

Either way, careful planning is essential to gain the trust of another business entity. It is even tougher these days as economic volatility remains overwhelming. So you must take proper measures before entering a merger and acquisition (M&A) deal. This article will provide tips to improve your company’s valuation.

Maintain a Prudent Revenue Diversification

Business owners want to see sustained revenue growth during these times. Whether a single or multiple streams, operational stability is always the key.

Assess each product or service you offer, and ask these questions. Which among the products or services derive the most revenues? Check the volume of each item you produce and compare it to the actual operating revenue. It will hint at their demand levels.

From there, you can find many options to grow your revenues. You can adjust the production level or create a new marketing strategy. You can eliminate the non-performing items and focus on the most in-demand.

If you wish to lessen consumer concentration, sell them to a broader market range. But before that, you must study the demographics of your target market to gain better insights.

Meet with them to have a deeper understanding of their needs and preferences. Know what specific product attributes they are most willing to pay for. Doing this will create or find new growth avenues. It will also allow you to differentiate your products and services. Surveys, quarterly business reviews (QBRs), and product validation can be helpful.

Improve Fundamental Stability

This aspect should always go hand-in-hand with the first tip. The first step is to fortify revenue streams for more stable returns. Yet, your strategies will go down the drain without efficient asset management. Observe your historical performance to know what you can do to improve your financial capacity.

Start by stabilizing costs and expenses. Although inflation has cooled down to 7.1 percent, it remains elevated. Compare the costs and expenses each item incurs to the revenue it generates. It is not enough that your products and services have high demand. You must ensure that revenues can cover costs and expenses to improve margins.

Second, eliminate your non-performing assets. These include fixed assets, investments, intangibles, and even inventories.

They incur more depreciation, amortization, and impairment, affecting your viability. They also hinder your expansion potential as they remain inflexible to market changes. Use your cash proceeds to restructure core operations and enhance efficiency upon selling them.

Next, stay away from the debt quicksand, if possible. Interest rate increments may slow down in the next twelve months. But it may keep increasing and lead to another recession.

Maintain adequate cash reserves to cover borrowings and dividends to shareholders. You can also sustain the operations when incurring net losses. You need more cash as economic volatility remains intense.

Lastly, project future financial performance. Your estimation must be consistent with your historical performance and current market conditions.

A three or five-year financial projection can redirect your business toward your goals. It may be tricky since financial statements must be consistent with one another. Without an accountant, it is wise to seek help from business and financial. They guarantee data accuracy and even spot slippages to correct previous financial processes.

Keep Investing and Innovating

Your business portfolio often includes inventories, investment securities, and fixed assets. Investments drive your business growth by generating yields. Meanwhile, innovation helps optimize your operating capacity to achieve economies of scale.

Focus on those with stable yields amidst inflation. The best possible choices are government-backed investment securities and treasury bonds. These are interest-sensitive, unlike corporate bonds and mortgage-backed investment securities. Additionally, they can hedge risks and avert devaluation, leading to stable investment income.

You may also venture into the stock market despite its bearish trend. Pick the most recession-proof industries, particularly those with high rebound potential.

You can invest in new technologies to streamline business processes for your fixed assets. Automation and digitalization will pay off sooner than you think. They promote efficiency and cost-reduction strategies across all business aspects.

Prepare Your Executives

In M&As, both the absorbing and joining companies want a solid executive team. No matter how exceptional you are, you must put the best people in their respective positions. After all, they are the key to business success after the deal.

Otherwise, the absorbing company may look for other people to manage the business. Hence, it can discount your business valuation without someone to take over immediately.

Conceptualize a Strategic Plan

Your long-term business plan must present measurable and attainable goals and milestones. It will show your business’s credibility toward successful mergers and acquisitions.

Entering into an M&A deal entails a lengthy preparation and legal procedure. But it is worth the try since it can transform your business. Additionally, it stimulates growth further and cushions market headwinds. The success of a deal can lead to an expansion and more opportunities.

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