When looking to sell a cannabis brand or dispensary, business owners can do several things to appeal to potential buyers and ensure they receive the maximum purchase price for their assets. Here, Sabas Carrillo, CEO of Adnant Consulting, offers tips to maximize a company’s value, from ensuring the legal and accounting side of the business is in good standing to maintaining a well-kept facility and team.
1. Get your financial house in order.
The first thing a company should do when looking to sell its assets is ensure that its due diligence packet is complete and ready to present to potential buyers, Carrillo says. This should include copies of the business’ licenses, tax returns, financial statements, regulatory filing requirements and any other documentation that proves that the company is operating in good standing.
“You want to make sure you have your financial house in order, that you have a clean set of books and especially that you’ve been audited,” Carrillo says. “You don’t have to go spending half a million dollars on an audit, but definitely you should consider getting your financial statements audited because through that process, you will become more organized and, frankly speaking, most of the large companies that are targeting smaller- and medium-sized companies for acquisitions, that is the first thing that they ask for—audited financial statements—because a lot of these acquisitions are getting valued on multiples of revenue or multiples of EBITA. If your revenue is in question, your acquisition is going to be delayed while you go do your audit.”
A seller will mitigate and minimize risk to the buyer by having an audit completed in advance of the transaction, and a solid in-house accounting team or third-party consultant will help the process along, Carrillo adds.
2. Outline a set of basic policies and procedures.
Businesses looking to sell should maintain a set of standard operating procedures and policies that outline how the company runs, Carrillo says. This should include sales processes, manufacturing processes, employee safety procedures, a basic set of financial controls, IT and security measures, and documentation that identifies company’s vendors and customer base.
3. Develop a branding and marketing strategy.
“Whatever your recipes is for how you market yourself online, you should capture that,” Carrillo says.
In addition, companies should perform a quality assessment of their social media followers.
“In other words, if I have 200,000 people following my brand, I’m going to have a surprise awakening if I wait until the time I’m in the middle of an acquisition when the buyer comes in and looks at how many actual people are following me and not just bots,” Carrillo says. “If instead of 200,000 people actually following me, I only have 100,000 because half are bots, then the quality of my followers and the quality of my brand, and thus the purchase price, is going to be affected.”
4. Employ a team member who has been through the sale of a company.
If a company is looking to sell, it should hire someone who has actually gone through the sale of a business, whether internally or as a consultant, Carrillo says. This person can help navigate the acquisition process and ensure that the seller is not taken advantage of.
“You don’t want to get bamboozled,” Carrillo says. “You don’t want somebody to come in and sort of impress you and have that … result in you letting your guard down, so to speak. Even understanding what is customary in a transaction matters a lot. So, you should have a clear roadmap as to what to expect during the actual transaction.”
5. Give all employees business titles.
Sometimes, a business owner will have a go-to person who is not a principal or manager, but who is an integral part of daily operations, and this person needs to have a clear title.
“Make sure you delineate everyone on your team and that they have titles that address the major pieces that any business should have,” Carrillo says. “You should have your finance and accounting people. You should have your security and IT delineated, your sales and marketing teams, your branding teams, and then obviously your operations team. Even if you have to call your office manager the director of HR, do it, because a lot of times, the office manager is the person doing payroll.”
6. Align the ownership.
Although it may not always be possible, ownership teams should be in complete agreement about the sale of the company and the terms of any potential acquisition deal before meeting with a buyer.
“One of the things I see often is there will be three or four or five partners—the owners of a company—and only one or two, the ones that control the entity [and] have the most ownership, want to sell, but the other people don’t,” Carrillo says. “Then, once you get into the actual transaction, it tends to get delayed or made more complicated, or you just appear to be fragmented. And if I’m the buyer, I’m going to leverage that fragmentation or that appearance of not being in alignment as a way of negotiating down on price or on better terms.”
7. Maintain a clean facility.
If a seller has a brick-and-mortar facility, is should be clean when presented to the buyer, Carrillo says.
“I know that sounds stupid, but I can’t tell you how many times I’ve gone to visit a company—an extraction facility or a cultivation—and it’s just dirty. [There are] boxes everywhere [and] it doesn’t look like they’ve cleaned in a while,” he says. “I know that these things are busy—operations are busy everywhere, people are running around, things get dusty and dirty—but you really want to have a squeaky-clean facility.”
If the facility is unkempt or the employees are not well put together, the company may leave money on the table.
“At the end of the day, the buyer is buying that team, as well,” Carrillo says. “So, having a team that looks a mess is going to equal to a lower perceived value.”
8. Perform due diligence on the buyer.
It’s just as important for the seller to perform due diligence on the buyer as it is for the buyer to do so on the seller, Carrillo says. It can also be a negotiating tactic.
“If the company’s been doing extremely well, great,” he says. “But if the company has had a few hiccups here and there, don’t be afraid to mention them during negotiations. Don’t be afraid to mention fluctuations and volatility in the stock price during negotiation.”
9. Help with integration.
Finally, sellers should offer to help with the integration of the two companies post-acquisition, as this could be extremely valuable to the buyer, Carrillo says.
“If I just bought this dispensary, I just inherited all of its problems, so anything I can do as a seller to help with that and help integrate the operations of my dispensary into the buyer’s, that’s going to go a long way,” he says.
For example, if the owner of the dispensary, who will be stepping away after the acquisition, was also the manager who dealt with the company’s day-to-day operations, then the seller should have another manager lined up who can take his or her place when the transaction closes.
“You’re going to leave the buyer with operations that don’t have a leader,” Carrillo says. “So, … succession planning after the sale is of value and a lot of value is perceived in that.”
Published at Thu, 16 May 2019 14:38:00 +0000