Issue link: https://www.e-digitaleditions.com/i/999236
March/April 2018 21 Being that your firm primarily works with family-owned businesses, how would you advise dealers and distributors in our industry that have reached the stage of "What If?" and are considering an exit strategy? One of the key things that business owners should focus on is the overall financial profile of the business, really understanding the levers of gross profit and bottom-line profitability within their industry and in their company. A big part of it, too, is being able to articulate the value. Why do your customers do business with you? What is it that you do differently that helps you win business? In terms of preparation, a third key element is making sure that you have a strong management team in place. If someone is looking to exit the business, having the pieces in place to maintain operations and the relationship with the customer is really important. Otherwise, it makes it almost impossible for an investor to see value in that business without that person in it. PREPARING TO SELL What do private equity firms like Trivest look for in an ideal investment? Partner Jorge Gross covers the do's and don'ts for distributors looking to sell. What is one of the most common missteps you see in the process? Believe it or not, business owners often have trouble with their financial statement. We can see the customers, we can see the suppliers, but how that all translates into earnings is the more difficult part. For one, there are often long delays in producing the statements. For example, if we're in August, some business owners may not have financial statements past March, which obviously is too far back for us to have a good indication of how the business is trending. The overall balance sheet and, specifically, the inventory and the AR also are important. Make sure that what's on the balance sheet is reflective of what's collectable and sellable. They may have a lot of old or obsolete inventory sitting in their warehouse and if you have to write it off, that obviously has a pretty significant impact on the value of the business You don't necessarily need to have a full audit but it's helpful to have an independent third party come in to make sure that you're booking all the entries properly—whether that's the inventory that you have on your balance sheet or the accruals for expenses.