As a small business owner you”™ve overcome many hurdles, and now you”™ve decided to raise capital for expansion or to retire or cash out to focus on new ventures. Before doing so, however, there is one more hurdle you likely must face: You have to successfully pitch your business.
The time appears right to do so. The Wall Street Journal recently published an article headlined “Small Business: Finally, a Good Time to Sell the Business.” In the article, the head of Small Business Administration lending at a major bank notes that small business balance sheets are looking better and that cash flows have turned positive. (WSJ, (10/24/13)
So what should you include in your pitch and what should you avoid to get the value you think you deserve?
Four small business executives ”“ two of them from Westchester ”“ are almost certainly grappling with that question as they prepare for ACG New York”™s West-Hud DealTank in Tarrytown Nov. 15. The DealTank is a kinder, gentler version of the popular TV pitch show where executives seeking to finance or sell all or part of their businesses face a panel of investors who critique their pitches and, sometimes, make an investment. The panelists in Tarrytown will be private equity investors and advisers, as will many in the audience. It will be a great place for business owners and observers to learn what seasoned investors want and to perfect their pitches.
So what should these business owners and others like them that have passed the mom-and-pop development stage include in their presentations and what should they avoid? Based on more than 25 years as a private equity investor, adviser and equity analyst, here are some tips.
Be concise and clear about what your company does. Sounds simple, doesn”™t it. But you would be amazed at how bad people are at describing the operation they founded or manage daily. Sometimes you are so close to it you do not see the forest for the trees. The businesses that attract the most investor interest are those that the investor can understand. If they do not, they will be very reluctant to pull out the checkbook. Avoid techno speak. Even if the business is based on computer technology or biochemistry, investors still want to know ”“ have got to know ”“ the basics in simple English.
Be sure to discuss the risks. Most business owners want to shy away from doing so, because they think risk is a black mark. It is not, and investors will give you credit for addressing the subject frankly and forthrightly. That”™s because every business has risks, and smart investors know they have risks and want to know what they are. They also want to know whether you see the risk and how you deal or intend to deal with it.
Be realistic about what your company is worth. You will have to address this at some point in your presentation. So raise the issue yourself and be prepared with comparables and, if your business is different, how so and why that justifies a better multiple. Selling your business is analogous to selling your house. If you put a ridiculous price on your house, you won”™t get any bids or buyers. Just as you would listen to your broker when selling your house, listen to your business adviser, who will start by telling you what your business is realistically worth. Do not dismiss or discount the valuation placed on it by the adviser who will have a pretty good idea of what the market will pay for a business given certain characteristics. Keep in mind that you want to offer your business at a price that is ideally going to attract more than one bidder in competition with others.
Be clear about whether you intend to sell the business outright or a partial interest. If you are exiting completely, you may just want to seek the highest price and then walk away. If you want to retain some residual interest, from minority to controlling, that will affect how you pitch the business. Best to decide this issue before you go into the pitch because it affects how you structure your pitch.
Experience says that executives who follow these tips will greatly increase their chances of finding investors and buyers. We will see on Nov. 15 whether the presenters incorporate any of these tips. As one of the dealmakers in the room, I”™ll be watching.
Richard Baum is managing partner at Consumer Growth Partners in White Plains, a private equity firm with an exclusive focus on advising and investing in specialty retail and branded consumer products companies. He is a board member of ACG New York. He can be reached at (914) 220-8337 or rbaum@consumergrowth.com.
