Internal Due Diligence Analysis

Pre-Sale Preparation

At Pharus Group, we believe knowledge is power.  As a Seller, you should have a clear understanding of your business value and any potential deficiencies in the business that could drive the value down or stand in the way of a successful transition.

Pharus Group will work with the business owner before going to market to look for ways to enhance enterprise value.

Our senior management team has years of experience handling successful mergers and acquisitions and will help navigate the process from beginning to end.

Due Diligence Analysis will include review of:

• Financial Reporting and Controls

• Profitability / Equity position

• Revenue streams / contractually recurring revenue

• Organizational Structure

• Ownership & Control of the Company

• Succession Planning

• Management Depth

• Customer Diversity

 

• Proprietary Products / Technology / IP

• Sales Pipeline

• Market Awareness / Penetration

• Product / Service & Customer diversity

• Industry Expertise

• Operational Effectiveness

• Compliance with Laws / Litigation Issues

• Professional Advisors (Legal / Tax / Investment)

 

Following the due diligence analysis, a plan will be presented taking into account the desired goals and objectives of the business owners (shareholders) and the corrective action required to get the business ready to present to prospective buyers. 

Our multi-disciplined business management team stands ready to implement the action plan to enhance the value and performance of the business and prepare the company for sale.

 

Develop the Plan:

Earnings Multiplier Method

The earnings multiplier method is often the best way to assign value to a healthy business that will be listed on the open marketplace. By basing price or value on some multiple of the business's earnings potential, prospective buyers gain the ability to translate the purchase into earnings and an informed return on investment (ROI) estimate.  This also provides a more tangible and simpler basis by which to compare different businesses in different industries or locations.

Business Valuation

Valuation can make or break a business sale because for many sellers, attaching a dollar value to their company is a touchy subject — especially if they have spent years building it from a fledgling start-up to a profitable enterprise. Left unchecked, the valuation process can quickly devolve into a pricing routine that is rooted in personal attachments and other subjective inputs rather than solid data based on marketplace realities.

 

Asset-Based Valuation

An asset-based valuation is a straightforward method in which the value of the business is determined by the total value of the company's tangible and intangible assets. The challenge with this method is that asset-based valuations can over-simplify the process and neglect the value of the company's earnings potential. That is why asset-based valuation is a common method for the sale of defunct businesses and liquidations, but not as common for thriving companies.

One of the reasons business valuation is such a complicated issue is because there are many acceptable valuation methods.

 

Rather than using a "one-size-fits-all" valuation approach, sellers need to decide which method is right for their business based on industry, size and the circumstances of the sale.

Let's be clear: the actual value of your business is the amount someone is willing to pay for it in the business-for-sale marketplace. Period.

 

 

Personal feelings about your company's worth are far less important than sound valuation methodology, accurate documentation, seller financing and other factors that could potentially influence value.

Common Valuation Methods

However, even the earnings multiplier valuation method presents challenges. Although earnings data is based on the business's historical financial performance, the calculation requires earnings to be precisely defined and agreed upon by both parties. Likewise, you will need to select the right multiplier to apply to defined earnings.

 

There can be a large variance in multipliers (e.g. 1, 3, 5, 10 or more) since the valuation reflects business risk and industry standards. With that being said, a simple way to get to a proper multiple is to work with a business broker who can share recently sold business comparables (commonly known as "comps"), so that you can see what multiple businesses in your industry and location have historically or recently sold for. Prior to working with a broker, you can visit business for sale websites like BizBuySell.com or BizQuest.com to see what prices and multiple of cash flow or revenue current businesses are listed for and have sold for.

How to Improve Business Value

GET A QUICK ONLINE BUSINESS VALUATION

Business brokers and valuation experts often find that sellers are surprised to discover that the valuation process yields a lower-than-expected asking price for their business. The good news is that if you are not happy with your business' estimated value, there are steps you can take to increase it prior to a sale. It is important to start immediately, as you need to start planning months or years in advance to implement the kinds of changes that substantially improve the value of your company.

From a buyer's perspective, proven profitability and future earnings potential are the most attractive qualities in a potential business acquisition. By documenting a multi-year track record of profits and positive cash flow, you can drive up the value of your company - substantially, if you choose to use the earnings multiplier valuation method.

But it's also important to strategically position your business for future earnings, identifying advantages your business either has or will have in the general marketplace. In some instances, the future prospects of the sector itself can be a factor in driving up business value.

Another strategy for improving business value is basic organization. Carefully maintained financial records and controls, documented employee policies, a well run and efficient operations department - it all counts when it comes to the amount buyers are willing to pay for your business. Simplicity has value, and the easier it is for buyers to understand your business and envision themselves at the helm, the more likely it is that your business will sell for its full value

Market Identification

While corrective action is being taken to prepare the business for optimum sale potential, our Marketing team will prepare the presentation documents to cultivate the interest of prospective buyers.  We will also concurrently work with your Business Intermediary (Business Broker or Investment Banker) to research potential acquirers (strategic or financial) and qualify them ahead of time to develop a targeted prospect list to pursue when the business is ready.

 

Once the business is performing at peak levels and ready to present we will contact the prospective acquirers and present the opportunity on your behalf.  Every step of the way we will provide professional representation and negotiate on your behalf to get the best terms and conditions.

 

We understand that there are several factors involved and different aspects that are important to each seller.  The ultimate sale price, timing of the close, terms of your exit and how your employees will be treated are all important factors and will be considered in the negotiating process and determination of the best buyer.

Headquarters

240 NW PEACOCK BLVD. STE 302

PORT SAINT LUCIE, FL 34986

 

772-223-3344

Fax. 772-607-6644

Additional Offices

 

Palm Beaches                       Orlando                                  Sarasota

561-228-5621                        407-608-5323                      941-893-1255

www.pharusgroup.com

Copyright © 2016 Pharus Group, LLC. All rights reserved.

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