The Basics Of M&A

Michelle Seiler Tucker, co-author of Exit Rich, on the financial fundamentals of buying and selling businesses.

M&A expert Michelle Seiler Tucker

Michelle Seiler Tucker, M&A expert and co-author of Exit Rich, has sold hundreds of businesses in her career. She spoke with StrategicCFO360 to share tips on how finance professionals can help their companies buy, sell and improve businesses.

What are the key factors to consider when developing a financial strategy for your company with an eye toward selling or buying?

One of the biggest factors to consider when developing your company’s financial strategy is the company’s timeline. Where does your company want to be financially in five or 10 years? Once you understand the company’s goals, you will be able to fully develop the actionable strategy that will allow you to meet the desired outcome.

Another key factor to consider is the company’s current cash position. Not only will this allow you to identify the financial strength and liquidity of your company, but it will also guide you in creating the financial strategy. The current cash position, along with other factors such as the monthly revenue of the company, will indicate whether your company has enough cash and is generating enough revenue to put toward expansion to meet future goals.

A third factor you should consider is the company’s current margins—gross and net. An understanding of the margins of the company will give you insight into whether your company is operating as efficiently as possible. It will allow you to cut costs by reducing overhead or sourcing different suppliers, which will in turn free up additional cash that can be reinvested into the company to achieve the goals set forth.

The last factor you should consider is the working capital needed to run your company each month. This is important because it indicates the company’s ability to pay off short-term expenses or debts, signaling the health of the company’s cash flow. Developing an understanding of such could prevent your company from overleveraging itself in both the short and long term.

How do you go about evaluating a potential acquisition for your company?

While the financial and operational performance of the company are obvious aspects a CFO should consider when evaluating potential acquisition opportunities, one of the biggest factors to consider is the synergies that may be created as a result. Will the potential target allow you to cut costs within your organization? Will the target present an opportunity for economies of scale? Will it increase client or supplier diversity?

How important is it to monitor the KPIs of your company?

KPIs can be used to help CFOs make informed decisions and steer their company in the right direction. This provides insight into the performance and overall financial health of the company, allowing you to make adjustments where necessary to improve both overall efficiency and profitability.

How do you go about identifying the key risk factors for your company?

Certain risks are inherent and unavoidable. The first step to mitigating these risks is being able to identify them when they arise. One way to identify and mitigate the risks is by analyzing the sources that may trigger problems, before they are triggered. These sources may be internal or external threats.

You can also make a list of industry-specific risks, giving you a guide of potential threats that lie ahead. And you should break down the different types of risks that may present themselves, such as operational, strategic, compliance or financial risks.

How do you go about preparing for the sale of the company?

First you must ensure you have all financials and other documentation in order that is needed to appropriately evaluate the company. The company’s financial house and records should be cleaned. The company should have five years of tax returns, P&L statements, balance sheets, cash flow statements and other documents. It is best to have audited financials as this is a preference of most buyers. Also, it is best to ensure the personal or nonrecurring expenses have been itemized as this will maximize the valuation of the company.

Next, you should source out an experienced M&A advisor who can help with the process while maintaining confidentiality. You should understand the company’s requirements for a successful exit—desired exit price, deal structure—and be prepared to work alongside an advisor during the evaluation and due diligence. It is important to maintain focus and continue to drive the company as well, as the only way to maximize value is to sell when your company is thriving.