The Calculable Value Of Your Management Team

Several years ago I participated in a seminar presented by the Kauffman Foundation for Angel investors.  Angel investors are typically high net worth individuals who provide funding for start-up firms with growth potential.  One of the missions of the Kauffman Foundation is to help these individuals become more systematic in their investment approach.

When asked about the #1 criterion they considered in evaluating a prospective company they replied without hesitation:  the management team.  I was not surprised and it fits with my experience in talking with hundreds of companies across the country – successful companies are driven by skilled leadership and management.

The lesson from this is important for business sellers to recognize, especially in key relationship-sensitive business as healthcare, human services, and education.  When you prepare to sell a business it is one of the first questions that most buyers ask, especially if they do not intend to actively manage the acquisition.  There is an imputed value in this process, and if buyers feel strongly that they have to add additional expense to create a viable management team, they will incorporate this in their offer.

Sellers typically profit from a leadership investment – a strong management team may seem to cost a bit more than a weak team out front, but that’s an illusion. Buyers always treasure competent management as a key for future growth and a return on their investment.