Business Owners sell their businesses for various reasons including:
- The time has come and that was always the intention
- The desire to step back and liquidate the “asset”
- Life events dictate (change in family circumstances, poor health etc).
This can be an emotional experience and a stressful process for some and the more prepared you are for this step the better – by being prepared I mean both emotionally and practically. Whatever the reason for selling, in most cases the seller wants to ensure that they get the maximum price they can for their business in the circumstances. This might not be the only factor on which a sale will be decided but it is an important one.
Planning for sale is the best way of ensuring that the sale price is maximised but in order to plan properly you need to know what buyers value – the factors that influence the price.
Most sales values are done as a multiplier of earnings and thus knowing the financials of your business is crucial. Buyers are buying the future earnings potential of your business so having a strong history of profit and an increasing trend in this area is important. The reliability of your financial information is also important – neither you nor the potential purchaser want skeletons to fall out of the cupboard in this area so having reliable numbers is crucial.
However there are other important factors that impact business valuations including:
- The industry you operate in and your share of it
- The growth potential of your business – could it cope with an increase in volume and how quickly? Could it be replicated elsewhere?
- Your business model and cost base
- Your reliance on key employees, customers and suppliers
- Revenue profile – the balance of one-off vs recurring revenue
- The cash requirements of your business
- Your position in the market – are you niche? Do you have a strong brand?
- Customer loyalty and satisfaction
- Your role and the strength and role of any management team
The above areas are go well beyond the basic financials of your business. Some are even termed “intangible” but the intangible can be very valuable. The important thing for you as a business owner is to know you can control and influence these factors and thus influence the value of your business. It in not an overnight job and will take some time – hence my comments on planning – but it is within your control and you can accelerate the timeline.
I have seen the sale of a business be unduly stressful because of a lack of preparation (a lack of financial information and expected documentation). I have also seen the sale of a business fall through due to an over-reliance on a supplier. Finally I have seen the lack of a competent management team have a negative impact on the final offer price. All of these situations were both regrettable and avoidable.
If selling your business is an option in your sights, think about what action your can take now to be in the best place possible. I can do an assessment for you that will get you started on addressing now the areas most likely to negatively impact the value of your business. Give me a call or send an email email@example.com to discuss having your initial value assessment conducted.