Now, twelve months later, many of these same business owners are feeling the effects of the unprecedented liquidity crisis and economic recession. Those who had been thinking about selling their companies to create long-term financial security for themselves and their loved ones are now feeling trapped and unable to pursue their goals.

The good news is that the M&A markets, the public markets and the economy in general ebbe and flow in cycles.  These cycles seem to last between four and eight years.  The trough of the last market was 2003.  The peak was 2007.  As a middle market investment banker and exit strategy advisor, I have witnessed several cycles of the private capital markets.  During this time I have noticed that many business owners often do nothing when the markets are soft to improve their chances of creating the financial security and personal wealth that is the goal of most entrepeneurs.

Instead, many business owners simply wait until the next wave of M&A activity, usually the next peak in valuations, to begin thinking about selling their companies.  Unfortunately, by waiting for the next M&A wave to come, many owners may miss or at least not maximize the value of their business or the net proceeds they keep from a transaction.

My point is simple: don't wait for the next wave, get prepared to make the most of it. If the market is soft for your business right now, it is a perfect time to get prepared for the market's recovery. Now is the time to focus efforts on things that will enhance both the market value and the marketability of the business in the future. Every business is different, but in working with a recent client , we identified these five value factors  that the business owner could work on to to enhance future market value and marketability of his company.  These same factors apply to almost every business.

Five Value Factors

1. 1.  Documented Business Plan: value increases when the risk perceived by a buyer goes down.  A written business plan that focuses on business operatinos and growth opportunities helps a buyer get a handle on the business and reduce the percieved business risk.  It also demonstrates the skills and expertise of a company's management team.
   
2. 2.  Company Website and Marketing Materials: many small ato medium sized business have been foturnate to grow largely by word-of-mouth and referrals.  To a buyer, this looks risky.  Buyers seek up-to-date marketing materials and an attractive, informative and Web 2.0 enabled website to demonstrate that new business does not depend solely on personal relationships that my not be transferable to the buyer. 
   
3. 3.  Capital Gains Tax Planning: most business owners spend a great deal of time focusing how to reduce ordinary income taxes each year,  yet spend almost no time planning how to minimize the largest tax bill a business owner is likely to ever receive.  Good tax planning can make the single largest difference in the amount of net proceeds a business owner keeps in a transaction. There are many IRS approved techniques to defer or significantly reduce the capital gains taxes due when a company is sold.  Consult your CPA today.
   
   
4. 4.  Management Succession: the largest impediment to value for most small to medium size businesses is a reliance on the owner.  Many business owners are essential to the on-going success of their companies.  This can kill a transaction.  To prevent this, begin training your replacement now.  Begin to transfer knowledge and responsibilities to key employees to reduce dependence on a single key person and improve the value of your business.
   
   
5. 5.  Accurate Financial Statements: inaccurate financial statements are the number one reason buyers pull out of deals.  Spend some time now making sure your financial statemetns are CPA-reviewed or audited.  Have well organized, accurate financial statements going back at least 3 years and for each year going forward.  This will make your transaction much more successful.
   

Clearly, some Value Factors cost more money and take more time than others to implement. When MidCap works with a client we look at 54 value factors.  Once a comprehensive assessment is done and a number of Value Factors have been identified, we rank them in terms of cost and relevance to the client's goals.  To narrow the focus, we recommend that clients work on those that have "high relevance" and "low cost".   The goal is to use this downswing in the market to maximize the value of the business so that you are ready when the next M&A wave comes.