In January of last year (2024), we wrote a Deal Note® regarding projections, in which we stressed that your projections, as a seller, must be convincing to a buyer. Today’s Deal Note® addresses the careful balance in your projections that is required to achieve aspirational results.
Just like Goldilocks and the three bears, you want the temperature to be “just right… neither too hot nor too cold.” And, while it is easy to determine if the porridge is too hot or too cold, it is much more difficult to determine if your projections are the perfect temperature.
In the case of projections, “too hot” means that buyers will not be convinced that they are credible. “Too hot” means that buyers will not find easy comparisons to historical growth trends. And “too hot” means that buyers will not be comfortable with your forecast when it is compared to your current LTAs, backlog, and/or pipeline. Conversely, “too cold” means that you are leaving money on the table by being too conservative in your outlook. “Too cold” means that buyers might have accepted higher future cash flows in your projections if you had provided the necessary supporting information and documentation.
Reaching the ideal ‘temperature’ when building your projections is crucial to achieving an aspirational price for your middle-market aerospace and defense company. This is usually the most time-consuming phase in our work when helping a client prepare for a sale. This is due to both the complexity of the work and the magnitude of importance that buyers place on projections.
When you decide to sell your business, please be prepared to devote significant time and effort to building a set of projections that are “just right” for your business.
Have a great day everyone,
Bill Alderman
Founding Partner
