Business owners often believe they have a lot of value locked in their company. They might be right. However, just how much value, as well as how to unlock that value, are things they tend not to recognize.
“Business operators, who might be very good at running their business, don’t really understand the mentality, the processes and the parameters that a buyer or an investor apply to a business in order to decide if they’re interested in it and decide what value to pay for it,” says Charles Robins, managing director of Fairmount Partners. “And, therefore, they under-optimize what they can get for the business.”
Robins says business operators tend to be in the weeds day-to-day, projecting forward most often in months rather than years. Therefore, they’re not focused on the fact that a buyer has a much different time window and is looking at different things, such as synergies, five-year growth potential and what their potential return could be on invested capital.
“Those things are not naturally optimized just by presenting somebody the business as it exists today,” he says.
What operators and owners need, then, is an education. They could benefit from understanding how investors and shareholders look at the value of a share over time, and how a buyer looks at the value of a business both initially and over time. Once that basic education is in place, Robins says they can start to put a framework in place to take the business apart, plan the business and then present the business in a way that can show the buyer how to get a good return, what the business is worth and put it in a posture that it can survive the scrutiny that it’s going to get from someone trying to buy it or invest in it.
Robins spoke on the Smart Business Dealmakers Podcast about the process Fairmount Partners has developed to help owners and operators maximize their value.
Listen to the podcast