International Door & Operator Industry

SEP-OCT 2017

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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MANAGEMENT MANAGEMENT John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and financial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including finding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@ zollerconsultinginc.com. important questions for a buyer, because the buyer is not just buying the assets of your company, but also the organization that made your business an attractive opportunity. A buyer will want to know if you have a real organization with managers who have delegation powers and the power to manage. The buyer will also want to know if you have non- performing or under-performing employees that should have been fired years ago, but the manager just did not get around to dismissing the non- performer, or the manager was too weak, or the manager didn't terminate the employee because of protection by the boss. These are issues that should be resolved before commencing the sale of your company. Cleanse your company of non-performing employees prior to showing off your firm to a potential buyer. #4 Do You Understand Working Capital and Why It Is Important to a Buyer Working capital is typically defined as current assets minus current liabilities. Buyers focus on working capital to make sure they receive the same value at closing that they understood when first looking at an acquisition opportunity. In short, buyers don't want the seller to raid the business, thereby reducing assets or raising liabilities before closing. What adversely effects working capital • Distributions to shareholders. If your firm is an "S" Corp or an LLC, distributions will be necessary to pay taxes. However, this must be discussed ahead of closing with the buyer. Otherwise, don't make last minute distributions prior to closing as this will reduce working capital. • Lack of maintaining true profitability between the first meeting with the buyer and closing will adversely affect working capital at closing. • Failure to pay payables, while also taking bonuses or increased salaries, lowers working capital. • Offering a discount on accounts receivable to facilitate faster collection lowers working capital. Smart sellers work hard to make sure the firm is managed profitably prior to closing. In many deals, owners are rewarded for increasing working capital prior to closing. The way to assure that working capital increases from the first meeting with the buyer to closing is to continuously manage to generate a profit. #5 Have a Defensible System for Accurately Determining Inventory – This logical rule highlights that firms that historically take a complete inventory will possess a key piece of data necessary to satisfy a buyer. On the other hand, firms failing to take an annual or quarterly inventory and properly pricing it leave themselves open to great scrutiny and distrust. Dealership owners that deliberately understate inventory to reduce taxes leave themselves open to a potential buyer wondering what other poor business practices the seller may have engaged in to cut corners on taxes. This often results in a period of protracted due diligence. Manipulating inventory to reduce taxes may lead to short term savings, but a long-term loss in perceived value. To prepare for an eventual sale of your company: • Take a physical inventory at least annually • Carefully price each item in the inventory. Don't throw numbers at inventory items from memory just to complete the job! • Compare the dollar value of the physical inventory to the book inventory in your software program and make the necessary changes to the book inventory number. • Use the correct inventory number to prepare an accurate financial statement This article will continue in the next issue of the International Door & Operator Industry magazine. Editor's Note: John Zoller and David Bowen of Zoller Consulting, Inc. presented a seminar at the 2017 IDA EXPO in Atlanta on preparing your business for sale. This article is Part 1 of a two-part article based on the concepts presented at the Atlanta seminar. "Buyers focus on working capital to make sure they receive the same value at closing that they understood when first looking at an acquisition opportunity. In short, buyers don't want the seller to raid the business, thereby reducing assets or raising liabilities before closing." (continued from page 48) 50 International Door & Operator Industry™

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