Preparing for an investor or an exit

The company earns. A multiple is applied to those earnings. That gives you a value.

But a potential buyer looks at the company slightly differently. What they want to know is: how much of all this remains once the current owner leaves? That is often where the uncomfortable part of the conversation starts.

For years that was precisely the strength of the business. The owner was fast. They knew the market. Customers trusted them. They knew almost every detail of the operation. But from a buyer's perspective it can look entirely different. If customers, knowledge and the key decisions leave with the owner, then part of the value is not in the company. It sits with the owner who is leaving.

One has a stable management team, a broader customer base, defined processes and an owner who no longer has to be involved in every important decision. The other earns much of its revenue from two customers the owner holds personally, and most important decisions end up with them. The numbers can look identical today. The risk to the buyer is not. And risk affects value.

By then it is already too late for some things. If due diligence shows the company depends entirely on the owner, a management team cannot be built in three months. A key customer relationship cannot be transferred to someone else overnight. Processes that lived in someone's head for years cannot suddenly become a system. And financial results that are not clearly presented and evidenced cannot be fixed retrospectively for prior years.

So the value of a company for sale starts being built before the sale itself begins. Sometimes several years before.

The first question is usually: “what is my company worth today?” But a few years before an exit there is a more important one: “what is reducing its value today?” If that is established early enough, part of the problem can still be solved.

Exit preparation then is not just preparing documents for a sale. It becomes a project to raise the value of the company before the sale.

The US and Croatian markets are not the same. But the message in that figure is very clear. An owner wanting to sell does not automatically mean there is a company a buyer will want to buy at the price the owner expects.

Only then does it make real sense to talk about valuation and starting a sale process.

Today's EBITDA is only a starting point. What the buyer wants to know is whether the company can sustain it without the owner.