International Door & Operator Industry

NOV-DEC 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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Page 36 of 126

34 International Door & Operator Industryâ„¢ MANAGEMENT Continued from page (33) Review your accounts receivables and delete pending bad debt to accurately reflect true value. Holding on to bad debt to increase owner's equity will quickly be discovered in due diligence and failure to subtract bad debt from total accounts receivable leaves a buyer to question the managerial strength of the organization. However, when determining the correct value of accounts receivable, if you are heavily involved in commercial work, don't forget to calculate the value of work-in-progress. Many owners have loaned money to their businesses for a variety of reasons. If there are insufficient funds in the company to repay the owner, these loans might be reclassified as paid-in-capital, meaning the owner will not be paid for these loans. If loans can be paid off prior to a sale, it is often best for the seller, unless the buyer agrees to allow the seller to keep enough cash in the business is clear the owner's loans. Repayment of a loan to an owner is a non- taxable event. #7. Do You Have a Well-Constructed Tracking System for Job Status? Some firms, especially firms involved with numerous and large commercial jobs and residential firms doing track work often utilize a tracking system to track job progress and more importantly the flow of funds on these jobs. A typical tracking system will show dollars billed, dollars collected and dollars yet to be billed plus retainage. Any large job with numerous partial billings should be monitored with a tracking system. Another important management tracking system is a means to carefully track backlog. Buyers are keenly interested in what existing jobs, yet to be installed, are on the books. For a buyer, a strong backlog mitigates financial risk and sellers who can immediately quantify backlogs in dollars and time show buyers their managerial acumen and often speed along the buying process. 8. Develop and Maintain a "Top 10" Customer List A "Top 10" list represents not just your top 10 customers, but as pointed out in the previous article, most garage door dealers enjoy a variety of sales types. Therefore, a buyer will not just want to understand who the largest dollar customer is, but also what customers rank highest in each category. Which customer represents the largest residential customer (or 10 largest residential customers) and which customers comprise the 10 largest commercial customers or the 10 largest service customers? More importantly, what percentage of sales do the top ten customers represent? If overall, your top customers represent a huge portion of your sales, this could be a warning for a potential buyer. The buyer will worry about the damage that could be caused by losing a large customer. On the other hand, if the top ten customers represent less than 40 percent of the overall business, the loss of one customer will not jeopardize the firm. Use data from vendors to estimate the market share your firm has in your territory by product type. A strong market share is better than a small market share for a buyer, but a huge market share will concern the buyer because of a fear a very large market share might mean no or little opportunity for growth. Provide a buyer with a ranked list of all vendors supplying material to your dealership. Many times, if vendors are common between seller and buyer, the buyer can negotiate better prices for both firms because of higher purchases, thereby increasing margins. 9. What Expenses Do You Charge to Your Business That a Buyer May Avoid? This is a nice way of saying, "What are you hiding or taking from the company"? Many expenses are legitimately run through the company, but are these expenses a buyer might not take. Such expenses might include country club dues, travel and meal expenses and sporting event tickets. Are there any employees or non-producing employees on your payroll such as spouses, parents or children? While there may be compelling family reasons for "carrying" these employees, their expenses drag down the profitability of the firm and often create discontent with producing employees. What benefits are paid to these non-producing employees such as gas cards, country club dues or leased vehicles. Again, while the expenses are justified by the seller, the buyer almost assuredly will not continue these payments and sees the elimination of these expenses as a way to improve the bottom line. Have you siphoned away cash before it hits the books? (Note: All of this is not necessarily bad.) If any of these expenses can be documented or verified, the expenses could be added to EBITDA and consequently will increase the potential selling price of the firm to the seller. Therefore, don't hold back trying to identify these expenses out of fear or embarrassment. These expenses might logically increase the selling price of the firm. 10. What Are the Skeletons in Your Closet? Skeletons occur in every business, but prior to selling, it is important to remove (or mitigate) as many skeletons as possible. Skeletons can scare buyers, causing them to walk away or lower the offering price for a business. Inventory distortions can be a closet skeleton, particularly if a seller could not bear to dump unusable or unsalable items... Look over your warehouse for old useless material and dump it. A buyer wants to see he or she is purchasing "clean" usable inventory.

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