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4 Key Strategies to Turn a
Lifetime of Work into a Legacy of Wealth

4 Key Strategies to Turn a Lifetime of Work into a Legacy of Wealth
by Collective 54
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Business owners and their advisers sometimes fixate on the multiples, usually of EBITDA, obtained in transactions. Normally, these are transactions involving other professional services firms and other owners. To maximize business value, however, that focus is misplaced. The reason is simple:

"All that any business owner can hope to achieve in a sale is the maximum multiple of EBITDA available in the marketplace for his or her business at the time it is offered for sale."

Company owners and managers should focus on building the level, sustainability, and expected growth of their earnings to maximize the value of their businesses. The basic idea is to have the company in a good, or optimal position, at all times so that at the time a sale is initiated, earnings are optimal and the outlook for earnings is favorable.

There are many more ongoing opportunities to work on increasing EBITDA for any professional services firm than there are for increasing the multiple. The steps outlined below will help you preserve, position, and transfer ownership of businesses. Rather than worrying about the EBITDA multiple, the business owner could work on one or more of the following:

1. Work on increasing revenue

  • Increase sales of existing services to existing customers
  • Sell existing services to new customers in new markets
  • Create new products to sell to existing customers (and new customers)
  • Omit lines of products or services that are losing money
  • Expand productive selling locations
  • Increase sales force if appropriate
  • Add new locations of distribution channels
  • Make acquisitions that fit and do not increase risk materially

2. Improve cost of sales or cost of service lines sold

  • Work on improving pricing on purchases
  • Enhance the product creation processes
  • Work to increase productivity of the operation
  • Invest appropriately to increase distribution efficiencies
  • Consolidate facilities or locations
  • Reorganize management or organizational structure
  • Fix any deferred investment issues

3. Improve operating expenses (absolutely or relatively)

  • Lower personnel costs if possible, or lower personnel costs per service line
  • Work to reduce occupancy costs
  • Eliminate known redundant expenses
  • Develop and implement new ideas for selling and marketing
  • Reorganize management or operational structure
  • Increase productive use of the internet and social media
  • Enhance technology to improve efficiencies
  • Work on systems to better organize delivery of services
  • Make solid investments in research and development

4. Other ideas to consider

  • Work on diversifying customer base to reduce risk
  • Diversify service lines to reduce risk
  • Diversify suppliers to reduce risk
  • Work on obvious branding and positioning issues

The key to obtaining the best price for your professional services firm is to work on the businesses over time to increase earnings, or EBITDA, rather than worrying about what multiple might be available in the marketplace. Once a professional services firm is on the market, it is too late to work on it. We began by saying:

"All that any business owner can hope to achieve in a sale is the maximum multiple of EBITDA available in the marketplace for his or her business at the time it is offered for sale."

But, in the end, the truth is that to achieve the maximum multiple of EBITDA available in the marketplace for a business at a point in time, the best strategy is to have been working to enhance EBITDA before that time.

At Collective 54, we provide personalized guidance from a core group of trusted peers to navigate the challenges of preparing to exit your firm. You can vet decisions by an experienced peer group who will offer unbiased advice in a confidential environment to transition your business. Join Collective 54 to engage in a multi-channel program specifically designed to help members successfully transition their firms, through the integration of principles and practices of preparing for a successful exit.

Sources: Gordon Brothers, 2020, Axial 2020