When the Time Comes to Sell

Reverse Logistics Magazine, Fall 2006

by James Goldstein, PhD, IMSM

When a business wants to sell, the largest influence on the price achieved is the fundamental economic law of supply and demand. Generally, people do not buy a business for what it is; they will buy for what the business does for them - earn them enough money to repay their investment, provide them with a lifestyle, and build for the future. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is an accountancy term that represents the sustainable cash profits of the business, assuming nil borrowing costs.

The decision to sell is always complex: timing is essential; there may be family or succession factors to consider, while emotional ties can prompt an over-valuation. For many employers, there is a strong feeling of loyalty to staff, and a desire to see them help the new owner, and work together for a rewarding future. "Work-out periods" are common, and need to be valued and planned. So any action that can be taken in advance to help the process go smoothly, retain customers, and support the key skills within the organization, needs to be put in place at the earliest opportunity.

In the global economy of the 21st century, businesses need to consider not only investors from the USA, but also from overseas, particularly in Europe, the Far East, and the Indian sub-continent. Many expanding corporations are looking for a foothold in the USA, as well as acquiring US management and marketing knowledge.

Being able to demonstrate financial strength, working with a skilled and experienced team, identified Unique Selling Points (USPs), and holding a sound customer base are all recognized critical success factors. Conforming to recognized international standards, such as ISO (International Standards Organization) can add significant value, and demonstrate confidence and efficiency in systems and processes.

Two such standards are ISO9001 (quality) and ISO14001 (environment). When a company holds ISO 9001, it is telling its customers, prospects and suppliers worldwide that it has a logical and documented management system. Good quality systems improve efficiency and open up market opportunities.

ISO 14001 is an international standard that recognizes the actions of responsible businesses in management and control of their environment. ISO 14001 leads to lower distribution costs, reduced waste, and identifies savings in energy and materials.

"Achieving ISO standards adds value by differentiating from the competition, improving efficiency and attracting new clients. A set of manuals, detailing the process from beginning to end, and a carefully thought out environmental policy, with action stages, can increase the valuation. However, many businesses feel that conforming to these standards is time consuming and costly, and therefore are reluctant to proceed. Using a supplier who will simplify the process, by providing a fixed fee, fixed timescale, integrated solution, with qualified assessors who have specialist industry experience, can really save a lot of headaches," notes IMSM Business Manager, James Goldstein.

When a business goes through the process of becoming ISO9001:2000 Certified, it takes an objective look at its systems and processes, then streamlines and documents them. The manuals add value to both the company and the staff, which will better understand how the organization works. Certification is an added bonus, helping a company to work with more valuable customers, and get onto many preferred supplier lists.

ISO 14001 looks at current practices in an Environmental Audit, and then helps the company develop an Environmental Policy and action plan. Simple elements include using natural light to reduce the need for artificial light, recycling or reducing the usage of photocopier paper, and reviewing packaging requirements.

"The environment has no borders, so we all need to show that we are acting responsibly for the future of the planet." he continues. "We are seeing increasing pressure as national legislation is tightened. For example, minimum recycling targets for all types of waste are being raised, and the recovery target for packaging waste is also under review. It is just this combination of environmental expertise, ISO knowledge and both US and overseas experience that can really deliver total environmental control and compliance for smaller companies. "

Ultimately, any business is only worth what you can get for it, at the time you sell it. A mathematical calculation of value is simply an indication of potential worth, used during the negotiation process. By careful planning, and implementing internationally recognized standards, a company can attract more buyers, locally, domestically and internationally. Holding ISO standards gives both buyers and sellers increased confidence, while customers can be assured of a continuation of the relationship, with "business as usual."

About the Author: James Goldstein, PhD, IMSM Business Manager. James is a resident New Yorker managing a team in the metropolitan New York area for IMSM, for IMSM, the quality systems specialists. He focuses on medium-sized businesses that supply major corporations helping them acquire ISO standards for Quality, Environment, Occupational Health and Safety and IT Security.

Reverse Logistics Magazine, Fall 2006