Business sellers are always well advised to highlight their strengths — such as experienced management, distinctive products or a strong brand — when marketing their company to prospective buyers. One potential key value driver that’s often overlooked, however, is efficiency.
Efficiency-based sales pitches are attractive because they present buyers with opportunities to maximize profits. Because there are so many ways to showcase strength in this area, sellers like them, too. For example, you might publicize technology improvements, supply-chain efficiencies or continual improvement programs. (See “How to cut costs and reduce waste now.”) Just make sure to clearly describe how your efficiency efforts can boost the value of the M&A deal and save the buyer money over the long term.
Recent technology upgrades — even when they’re relatively simple and inexpensive — make a positive impression on most potential buyers. Software packages that facilitate functions such as accounting and employee benefits management are good examples. So are inventory management systems or moving to the cloud. If, for example, you’ve adopted cloud computing, be sure to highlight the following:
Reduced storage costs. With company databases stored on an offsite server, the need for in-house facilities and maintenance drops substantially. This translates to lower physical storage space needs and less IT personnel labor.
Lower operational expenses. If you use cloud services, your company’s chief information officer doesn’t have to spend time planning and administering in-house infrastructure upgrades. Also, it’s easier to budget for cloud services because they have fixed subscription rates, as opposed to the fluctuating costs associated with maintaining servers on-site.
Greater flexibility and productivity. Because they offer remote access to networks and databases, cloud-based systems easily accommodate employees working offsite — even as they travel. This means that employees can accomplish more in the same amount of time.
Few businesses benefit from improved efficiency more than manufacturers. If your company has successfully lowered production costs without sacrificing quality, make it a key selling point. Explain to possible buyers how your investments in automation have reduced labor costs or your streamlined design process has virtually eliminated waste.
Because implementing efficiency measures can be costly and time-consuming, buyers appreciate manufacturing businesses that have already successfully completed the process. They may be intrigued by your systemic improvements — and plan to adopt many of them — but buyers may also be apprehensive about the expense of integrating a business that’s too different from their own. So you’ll want to communicate how easily your systems and processes can be integrated into your buyer’s organization.
Many businesses now use outsourcing to cut staffing expenses and focus on their core capabilities. Depending on your buyer, this can be an effective selling point. If you’ve outsourced product design functions or transportation needs to a third party, for example, make sure you can quantify your financial savings and productivity gains.
Note, however, that outsourcing can be a contentious issue in some cases. Buyers generally become responsible for contracts sellers have signed with vendors. If, for example, your buyer wants to bring certain services back in-house, canceling contracts can result in financial penalties or legal complications. So if you plan to sell your business in the near future, consider negotiating more flexible contracts with service providers.
If your company has pursued several efficiency initiatives, you don’t necessarily want to trumpet all of them. Pinpoint which efforts have been the most successful and have had the biggest impact on your bottom line. Your M&A advisor can help you research efficiency program results and come up with data that will make the most compelling case to prospective buyers.
Even if your company isn’t planning a sale anytime soon, it probably can benefit from an efficiency upgrade. Depending on your business, one of several established and widely adopted programs can help you reduce errors and defects and increase overall productivity.
Six Sigma — used by many top manufacturers and service providers — is probably the best-known program that aims for greater productivity and quality. A typical Six Sigma project aims to produce less than 3.4 defects per million opportunities in a given process. The lower the number of defects, the further your company advances and the more money you ideally save. According to the Six Sigma Academy, companies that reach the highest level save about $230,000 per project and complete up to six projects annually.
Total quality management applies to several initiatives that seek high levels of customer satisfaction via continual, companywide improvement of specific processes. Your business might use a total quality management program to improve response rates to customer requests or shorten transportation time from production facilities to retail or wholesale sites.
Finally, lean programs help manufacturers reduce waste by first identifying what activities in the production process add value and then eliminating non–value-added activities. Your company might use a lean program to shorten production cycle time, reduce inventories and cut labor costs.