Key Drivers of Business Value.

Most business owners never receive full value when selling their business because by the time they come to put the business on the market, either it is too late to do anything with it or the owner has no energy to properly prepare the business for sale.

We advise our vendors to take a good look at their business from a buyer’s point of view. Act as though you are doing a due diligence prior to purchase. This applies whether you own a micro business that operates from home or has sales of millions of dollars per year.

There are a number of areas you can look at in preparing your business for sale. Each point relates to one of three things:

  • Boosting Profit
  • Boosting Cash Return
  • Reducing Risk associated with your business.

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Here are our drivers of business value.

  1. Ask Yourself “Would I buy this business?”
  • Take a good look at the strengths and weaknesses of your business.
  • Boost the strengths and fix the weaknesses.
  1. History of Ownership – 5 years or more would be acceptable.
  • If your business does not have a long track record, be prepared to prove profit or sales in some other way by trial or by way of performance clauses to be satisfied prior to full and final settlement.
  • Without track record on your side be prepared to wait a period before full purchase price is paid. In our current economic climate, whilst history is no sure pointer to future performance, it is easier to predict the future if you have a longer past to go on.
  1. Image, Brand & Reputation add Value
  • Nurture your reputation by the quality of the products and services you deliver
  • Always be conscious of the image you project.
  • A good brand says to the market “Trust me and I will look after you”
  • You have a personal brand as well as a corporate brand.
  1. Client & supplier contracts are in place and in writing where possible.
  • It might be OK for you to believe your contracts, though oral, are safe, however a buyer needs more assurance. Written contracts provide a measure of that assurance.
  • If you rely on a single supplier, you are at risk unless you are protected by a long contract and even then there are no guarantees.
  • Execute written agency agreements where possible. Spread your sales amongst a wide range of clients, rather than relying on one or so major client for sales.
  1. Patents, Trademarks and Copyrights should be protected.
  • Consult a patent attorney to see that your logo or company style can’t be copied without impunity
  1. Lease must be of sufficient length and contain reasonable terms.
  • Negotiate your lease before putting the business on the market.
  • Have lease read by an expert in lease negotiations.
  1. Reason for Sale needs to be genuine.
  • Don’t invent reasons for sale. Such a strategy is transparent and will not help you realise value for the business
  1. Employees – profiles should be prepared and contracts should be secured.
  • Your staff is one of your great assets. List their duties, strengths, length of employment, salary, incentives etc.
  • Tell your key employees that the business is going to be sold. Tell them you will endeavour to secure a future for them in the business if they wish.
  1. Current owner’s influence should not be too great.
  • Give more responsibility to key staff.
  • Reduce the hours you spend in the business.
  • A business heavily reliant on the current owner loses value for that reason.
  • Start by outsourcing and move to hiring others to replace you.
  1. Credit rating should be healthy.
  • Pay your debts on time
  • A poor credit history can unsettle a buyer.
  1. Computerisation is Crucial.
  • If you are going to set a program of two years or more, then you should computerise your business.
  • Computerise bookkeeping immediately.
  1. Little or No Changes in Key Financial Ratios (KPI’s) in recent times.
  • There are some figures that should remain constant from year to year.
  • If there is a marked deviation from the standard rise and fall, explain this satisfactorily.
  • Keep notes to explain why sales might go up or down, and why expenses suddenly blow out.
  1. Clients – Good Spread is Better
  • Don’t have your business too heavily invested in one or two major clients.
  • A good spread of clients makes a buyer feel comfortable.
  1. Business is not too Cyclical – Watch Trends
  • If you do have trends in sales, explain them by way of season, weather etc.
  • Introduce new lines in your business to help smooth out the bumps.
  1. Accurate Assessment of the Competition is made.
  • List your competitors.
  • Assess the strengths and weaknesses of your competition.
  1. P&L, Balance Sheet and Cash flows
  • Have the most recent tax return available within three months of the end of financial year.
  • Keep management figures current monthly and keep a monthly record of cash flows for past two years.
  1. Business Plan
  • Only 17% of those with a business plan actually make it a working plan. Make sure you have a working plan and regularly review it. It can make a foundation of the Information Memorandum we speak of next.
  1. Get an Information Memorandum – Prepared by a Professional.
  • A broker can help with this task. A good Memorandum or Selling Brochure will boost the value of your business.
  1. Ensure Systems are in Place
  • Wherever you can, systematise your business
  • Detail your business operations.
  • Create an operations manual.
  • Also ensure the sales process is systematise. Avoid the temptation to “binge market”
  1. Form Your Team.
  • Hire A Broker, Accountant and Solicitor Who Knows Something about Your Business.
  • Get them involved early.
  • Selling a business is too complex for the job to be handled properly by the owner.
  • The professionals will take you through the pitfalls and guide you to the winning post.

Choose those who have experience in your industry and ask those who have used winners in the past to recommend someone.  If you want to learn how to maximise the value of your business get out “Grow and Sell Your Business” training package.