All business owners will at some point wonder how much their business is worth, how they can increase its value and what do they need to do before any sale process commences to get their business into the right shape?
There are many reasons why owners of a business may consider selling, the most common being some form of succession due to retirement or a tempting offer is received from a third party. Other reasons however could be that the owners may have taken the business as far as they are able and in order to continue to grow and develop, the business needs access to further funds or resources that they do not have available to them or they don’t wish to take on the additional business risk by doing so.
Whatever the reason is for the sale, it is important that the owners follow some basic rules to ensure that they can try and maximize the value of their business. In most circumstances, this is the most valuable asset they have.
Planning ahead of a sale event will reap benefits and it is important to develop a strategy driven relationship with your adviser at least eighteen months (preferably longer) before the sale is due to take place.
The business needs to have shown a strong but gradual growth in earnings and all non- core or no growth parts of the business should be disposed of. What will make your business worth more however is to stand out from the crowd, ensuring you outperform the sector and your competitors and you are increasing your market share.
To really maximize the value of your business, it needs to have a high barrier to entry, using well developed intellectual property with long term customer contracts and not be dependent on any one customer.
Owners need to understand that the business cannot be just about themselves, in other words, there needs to be a well- developed management team beneath them – a team of skilled and motivated people within the business utilising quality operational systems. This is crucial, ensuring most customer and supplier relationships are embedded within the team and who will be staying on after the sale has taken place.
If all of the goodwill in the business rests with the outgoing owner, then a potential purchaser will see this as a weakness and their valuation will reflect this.
Ultimately, it’s about planning well ahead of the sale, getting your own house in order and being well prepared for the due diligence process. You will then reap the benefits that your efforts deserve.