Author: Tim Van Mieghem, The ProAction Group
BEYOND EXCEL SPREADSHEETS
Quality of Earnings Report Should be Paired with Operations Diligence
The importance of a Quality of Earnings (QoE) report cannot be overstated. They are ubiquitous. The report is a key tool in understanding the health of a business, but it is not the only tool. Beyond the clarity a QoE delivers on the buy-side, it can also provide sellers with a third-party’s view of potential areas for concern – areas that can be targeted to maximize the company’s future market value.
The QoE report contents are the same regardless of who requests it (or should be!), and that information provides a full picture of the business financials with key insights into aspects of the company’s operations… or does it?
Operations Diligence – It’s not Sexy, but the ROI is
Foreseeing future negative surprises and understanding the true hidden value within an organization’s operations are essential to protecting and unlocking future profits. Sounds simple, however it’s not sexy work and is best done by functional experts who are deeply versed in the questions to ask and things to look for. When dealing with operations planning, it’s important to understand WHY something is done the way it is before plans are made to improve it. It’s important to dive deep into the operations and identify future negative surprises, quantify ops challenges, and qualify whether the challenge is worth solving. Furthermore, it’s important to identify and quantify hidden value worth claiming – before a single employee is added or piece of equipment or machinery is purchased.
Enhancing EBITDA through operational improvements, albeit not sexy, is not only a proven way to increase ROI, but is also a critical cash flow lever in today’s environment of lofty purchase price multipliers.
The Check you Write and the Check you Get:
Beyond the third-party expertise of a thorough operational review by industry veterans, our process involves great, collaborative communication with both the buyers AND the sellers (and their associated service providers and investment bankers). We are often viewed as a relationship bridge, helpful to both sides of the deal. Buyers will sense that we seek a practical understanding and appreciation for all they have achieved with their current operations. We’re a fan of entrepreneurs, and our passion and enthusiasm for understanding their processes are genuine. We work to document the “as-is” and seek to claim the “could be” in operational value. As a result of our work, buyers will have confidence in the check they write, and knowing the potential cost to generating the results they wish to achieve.
We work with sellers to provide support and objective assessments that identify and quantify the impact of implementing operational improvements, which will provide exponential value in the selling process. We provide a fresh perspective and fine-tuning of operational processes, documentation to expedite the operational diligence process, and a dry run, in anticipation of tough questions that may occur during negotiations. As a result, we help sellers reveal the value that’s hidden in their business and increase the potential to receive checks with extra zeros on the end.
The ProAction Group, and its Operational Diligence, provides a proven process for achieving exponential value for companies in a wide range of industries and sectors, including manufacturing, distribution, and business services.
We invite you to reach out to our team anytime to start a conversation about the benefits an Operational Diligence can bring to your company, as well as any related services we may provide, to help buyers buy and sellers sell.
The ProAction Group is the “Go-To” Operational Resource focused on Private Equity/Portfolio companies. While most of our clients and work is PE-based, we also provide the same services to private and public companies that are committed to improving their businesses. We identify opportunities, prepare strategies, and implement operational improvements and recommendations to increase the value of the business. To find out more, visit http://www.theproactiongroup.com