Whether buying or selling a business, it's important to be ready for what's coming. To set yourself up for a process, Steve DeJohn, regional VP at Summit Fire & Security (who had been the COO of Protegis Fire & Safety until its May 2022 sale to SFP Holding Inc.'s subsidiary Summit Fire & Security) says some of a company's sophistication is in its routine and predictability.
"We look a lot of businesses that don't have any routines," DeJohn says. "Do they have management meetings? Whenever we get around to it. They don't accrue expenses. So, one month, they have an 80 percent margin and the next month they have a 10 percent margin. And those all speak to how you manage the business."
More importantly, for both potential buyers and sellers, is predictability. Speaking at last year's Cleveland Smart Business Dealmakers Conference, he says having that routine in place to make sure the business is effectively run communicates to potential buyers that this is something that can either be brought into the business and operate not just to build on what already exists but to build for the future.
"That really speaks a lot more than anything that you can communicate verbally," DeJohn says.
He says he also looks at customer concentration. For companies with a high customer concentration, the question is if one customer leaves, would that hurt the business? But more than that, the question should also be, is that big customer very profitable?
"That's one thing we've run into several times is sometimes it's a bigger customer but it's not really that profitable," he says. "So, we exert a lot more energy and resources placating that customer to find, well, you know what, maybe we could do better with another set of customers.
Companies going into a sale process need to be good at telling their story — and not just the story of where the company is today, but where it's headed.
"You need to make sure you're putting your best foot forward and you got to make sure that you have the requisite amount of excitement about not just where the business is today but where it can go," he says.
For those who have held their business for a long time, DeJohn says there is a lot of emotion wrapped up in it. But sellers, and even buyers, need to work to take the emotion out of the process.
"You have to extract emotion," he says. "It can be a very visceral conversation and process but the more you can take emotion out of it and make very well-thought-out, prudent decisions is going to help you."
Relying on advisers can help create some distance for owners.
"Don't think you have to do it all alone because it's very difficult and the more you're immersed in this type of process, the more emotional you're likely to get," he says. "It is important that you rely on others to give you information that frankly you just might be too involved and immersed in it to really take a step back and see from a broader perspective."
