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KSA Foodservice Distribution Update

September 2008

Realizing the Value of Your Business

By Bill Beattie

Would you allow one of your DSRs to make an important sales call without any planning, product knowledge or call preparation? I’m sure the answer is NO, yet we are often contacted by owners who are contemplating an exit strategy and have not done the same basic preparation. If this could be you, I strongly recommend you review the list of key issues provided here.

Just as you work with your DSRs to be sure they are prepared, we at Keiter Stephens Advisors do the same for our clients. We begin by conducting a detailed evaluation to determine whether we can secure a high enough price for the business to yield a net dollar amount (after retiring debt and paying taxes) to allow the owner/s to support their planned lifestyles. If that goal cannot be achieved, we explain why expectations are unrealistic – so that we don’t waste the seller’s or the buyer’s time.

Below are the key areas we consider in our initial evaluation. It’s critical to accurately define and position each of these areas to maximize potential value:

The 4-Year Trend - is the business growing, flat or declining – and why?
Gross Margin Assessment – break it down into selling margin and earned income.
Net Operating Income and EBITDA – spell out a three year history and a forecast for the future.
Customer Make Up – define the composition of street, local chains, national chains and specialty markets – and the impact of each segment on sales and gross margin contribution.
Delivery Information – with the impact of higher fuel prices, there is increasing interest in the number of miles run each year. Revenue / gross margin dollars per delivery, running costs per mile, as well as the profitability of individual routes need to be detailed.
Product Information – describe and rank the profitability of major product categories, vendors and individual line items by sales and gross margin dollar contribution.
Accounts Receivable – with operator closings on the rise, reporting current aging, bad debt history, reserves for losses and recent collection trends is essential.
Management Team – depict the organization’s management structure, tenure of key managers, the compensation program, and, if applicable, where changes should be made.
Sales Team – longevity and compensation plans are key, as is the production and customer concentration for each sales rep.
Capital Expenditures – is the facility, fleet and operating equipment up to date; will significant expenditures be required in the near future?
The Distribution Facility – define its size and condition by area (dry, frozen, cooler, docks, office, land) and the potential for expansion. This could be the key component that pushes the purchase price across the line.

You may be wondering, can I get away without all of the homework? My answer: sure you can, but if you gather this information and package it properly it will help you maximize your business value. It’s also important that the information ultimately presented is consistent. Walking through this exercise will help to ensure that the data that comes out of your IT system matches your monthly and annual financial statements. This will help to avoid crisis of confidence that could come from mismatched data midway through the sale process.

In closing, this is your vision for the sale of your business. Structured preparation is essential to securing the full value of what you’ve worked hard to build.

Please call me at at 804-565-6018 or email me at bbeattie@ksadvisorsllc.com if you have questions or would like to discuss this further.

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