The DAK Group – Middle Market Investment Bankers

3 Strategic Moves to Strengthen Your Company’s Value in 2018 – Start Now!

3 Strategic Moves to Strengthen Your Company’s Value in 2018 – Start Now!

By Alan Scharfstein

With 2018 just around the corner, now is a perfect time to take a few steps to ensure your company’s “house is in order”. You know what I am talking about, the tasks that you know you SHOULD do – but you are waiting until “you have some extra time”. The “little” changes in your infrastructure that nag at you, that your attorney and accountant remind you of, year after year.

While they may be “annoyances” to you now, the time you took to set things up strategically, will pay back in big dividends when you decide to exit your company down the road. Let me explain how, you may be very surprised.

Intellectual Property – You own it? Prove it!

Many business owners are surprised that often employees or vendors may control or own an interest in certain intellectual property. You can take steps to protect your IP and assure buyers of your control on patents, copyrights, trademarks, licenses etc., but it is not unusual for others to lay claim to what you believe is proprietary and protected property. You don’t want a buyer to be attracted to your company, and then learn you don’t own vital IP.

A few years ago, we were engaged by a manufacturing company known for its innovative product design. Before we began the transaction process, we requested an inventory of all patents, trademarks, and copyrights. Unfortunately, the company had not been keeping careful controls in this area. It turned out many copyrights had expired and one key patent was controlled by an outside contractor. It took the company an additional three months to gather their records in one place and bring everything up to date.
In this case, the client benefited from its preparation: by the time the company engaged in the sale process, all records were in place and prospective buyers were pleased with their excellent condition. Ideally, these IP controls would have been set in place years earlier and maintained on a regular basis.

You may want to conduct an IP inventory of your own, start now, so by 2018 you will have a full assessment of your IP assets, and they will be in order moving forward.

Lock- In Key Employees – or Lose Out

If you are dependent on one or several employees for sales or other key areas of your business, a buyer will want to know that these critical employees will continue with the business after the sale. In many cases, the new owners will depend on them as much as you do. If they decide to leave or want an incentive to stay, this could cause a renegotiation or put the deal at risk. Consider having key employees enter into a non-compete or non-solicitation agreement before you even consider selling. You can do this in conjunction with awarding bonuses or promotions.

For example, key sales people are critical to your company’s success. The buyer will assume there will be continuity after the transaction, and this will help to enhance the purchase price. Key salespeople will often be solicited by competitors after a transaction is completed. So, locking them in early will reduce transaction risk, creating long term benefits.

Determine who your key employees are and have your attorney draw up the appropriate agreements, get it down now, so it does not slow you down later.

Supplier Concentration – Manage It AND Reduce It

It is not uncommon for business owners to be loyal to their suppliers, especially if there has been a history of good service and fair pricing – with no reason to change. Prospective buyers may not trust this relationship as much as you do, simply because it is “personal” to you. They have no way of knowing if the suppliers will continue with the service and pricing after you are gone. As a result, this could negatively impact the valuation they place on your company, resulting in a lower offer. Depending on your specific business type, these issues may be unavoidable. Still, there are ways to mitigate the risk. Contracts or consents with key suppliers will instill a greater level of confidence in industries where supplier concentration is unavoidable. However, it is still best to expand and diversify your supplier pool. Anything you can do to reduce the risk of concentration will help to increase the value of your business.

Take Action Now, Increase Value for Later

Review the areas that could be perceived as risky by potential purchasers now, in the fourth quarter, and develop a detailed plan to mitigate those risks in 2018. This is not only a good business practice, but an excellent step in ensuring you will earn the maximum value for your business when the time comes to exit.

Alan Scharfstein is President and Founder of The DAK Group, an investment bank specializing in the middle-market. More information and downloadable business tools are available at

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