We typically see the exit from a business falling into the following process:
- Understand the value of the business;
- Maximise value;
- Detailed preparations for sale;
- Marketing the business;
- Completion of a sale.
How can you maximise value?
The following value drivers should be frequently considered, however, if you are planning on selling your business within the next five years, these need to be addressed to ensure that your business can achieve its full market value potential.
- Profitability – To be in the best position for sale, your business needs to demonstrate underlying profitability and growth potential. The best scenario for a seller is to demonstrate a pattern of consistent growth.
- Strong Management Team – Does your business pass ‘the bus test’? If you were hit by a bus tomorrow, would your business continue to run effectively? If your business can’t run itself without you, then this is something you need to address.
- Healthy Cash Flow – With poor cash flow often being the cause of business failure having a healthy cash and working capital position demonstrates that your business has been run efficiently and effectively.
- Barriers to Entry – Barriers to entry will increase the value of your company. Intellectual property, high capital investment and advanced technology are all factors that create barriers to entry which can maximise the value of the business.
- Clear Strategy – A buyer will often want to see that a business has been run with clear strategic objectives in place that management have bought into.
- High Customer Concentration – Business value can be significantly eroded where one customer accounts for a significant portion of your turnover. The ideal remedy for this is to dilute this proportion by winning more customers, however, some businesses may find themselves in a position where they cannot avoid high levels of customer concentration – in this scenario it is best to try and put robust contracts in place, thus providing some visibility of future income.
- Capital Expenditure – Are the assets that are required in the day-to-day running of your business in good shape? Assets should be up-to-date and well maintained to ensure that productivity levels are high and the benefits of this subsequently filter through to improve financial performance.
- Customer Satisfaction Rates – In a world heavily focused on social media, customer satisfaction must be at the forefront of every business owner’s mind. Negative customer feedback, particularly on a regular basis, highlights poor customer service which has a detrimental impact on value.
If you plan to exit your business in the next five years or so, and are concerned that one or more of the value drivers outlined in this article may have a negative impact on its sale value, we can help you to get your business in the best shape for sale – and then help you to sell it.