Maximising the Value of Your Business
Over the years, we have met many owners of Family & Private Businesses that wish to sell their business.
However, it is astonishing how many put little or no planning into preparing their business for sale. Quite often, it is a case of “Can you help me sell my business ? I’ve had a gut-full of this, and I’m ready to go now !”
Our view is that there are many strategies that will assist you to be well prepared and give you the best chance possible of maximising the capital value of your business.
In particular, we believe the following factors are important to take into consideration:
- Give yourself time. We believe you should put a plan in place at least 3 years out from your intended sale, to give yourself time to have the business ready for sale;
- Have a good look in the mirror. Undertake a genuine review to consider the strengths and weaknesses of your business. Understand the strengths you need to emphasise to a potential buyer; and the weaknesses you need to address. Ensure you can highlight the opportunities you are leaving on the table for a new owner, and confirm you have considered potential threats and there are strategies in place to mitigate such factors.
- Maximise your profitability over the 3-year period. Focus your energies on maximising revenue and margins, and consider all options for reducing costs. Many business owners continually reinvest profit back into the business for a medium-term benefit down the track. This is sound business practice for an on-going business. However, in relation to a potential sale, ensure your cost structure is focused on the “here and now” and aimed at reducing costs, taking a shorter-term view than might ordinarily be the case.
- Understand and mitigate the risks associated with your business. If you can prove to a potential buyer, the risks associated with generating a given level of profit is low, then they may be prepared to place a higher value on your business. Thus, ensuring long term contracts for revenue are in place where possible, key employees have been employed for an extended period and are committed to the business, and that there are sound Work, Health & Safety practices in place are just a few examples that may add value to your business.
- Transfer Personal Goodwill. Put yourselves into the shoes of a potential buyer who may be nervous that much of the Goodwill associated with the business may be attached more readily to you than the business infrastructure. Ensure all systems and processes are documented, and where possible pass on management responsibilities over the 3-year period to key staff that will remain in the roles after the potential sale.
- Prepare a sales pack. This is a major financial event ! Ensure you document a sales pack for potential buyers illustrating the strengths and opportunities for a potential new owner. The pack should include a range of information including why you are selling, tenure of key staff, and both historical and forecast financial data on a normalised basis.
If a potential buyer is prepared to value your business on the basis of a higher valuation multiple if risk is low and systems are in place, addressing these issues can place material additional value on your business.
In addition, if a potential buyer is valuing your business at say for example 4 times the level of maintainable profitability, the value of your business may grow by $100,000 for every $25,000 in additional profit you have been able to generate.
The upside is really there, so put a plan in place and enjoy the benefits into your next venture or retirement !