Do you know how buyers will value your business? Indeed, is it sellable?
It is important to have an idea of how the market will react to your business before you present it for sale. How will buyers view your businesses? What is it worth to them? Is it a viable investment?
This is why we offer a free initial assessment of your business to provide our view on what headline value buyers are likely to offer, as well as the deal structure. As part of this process, we seek to identify what will make the business particularly attractive to buyers, as well as whether there are any potential hurdles which will impede a sale. Is it Sellable? That way, if there are challenges to address you can fix them before you embark on the sale process.
As per the old adage, a business is worth as much as a buyer is prepared to pay for it. This is however balanced by how much a seller is prepared to sell it for.
Buyers will of course analyse the metrics of your business and will use a variety of valuations methods. These typically include a multiple of earnings (EBITDA), or a multiple of revenue; they will also consider the net assets and fundability alongside these metrics. You can find out more about valuation techniques in our Free Guide on “How to Value and Maximise the Value of Your Business”.
The scale and sector of a business will determine to a large extent the level of “multiples” achieved. However, the key driver for buyers is the sustainability of the bottom line profitability and the opportunities for growth. Whatever the financial performance of your business, buyers will need to be confident in its continuity:
- Are the revenues and sales processes dependent on you?
Is there someone-else within the business who is able to perform the complete sales function from initial enquiry, through bid and quote, to winning the contract?
Businesses that depend on the owner to win new sales (or indeed the strong relationship between the owner and existing clients to maintain recurring business) will represent a major risk to buyers.
If you do not have a sales process, develop one. Have one full time member of staff attend initial sales meetings with clients and take on your current roles in the process.
- Does the business function without you?
A good buyer is not looking to buy a job. Are day to day issues down to you to resolve? The more time you spend in day to day activities in the business, the less value it represents to the buyer. If the buyer has to work full time in the business, then he/she will have to pay themselves a salary.
Recruit or promote a suitable successor, put a management structure in place, or consider providing on-going consultancy.
- Will the “technical expertise” of the business leave when you leave?
How can a new owner without as much experience or technical know-how as you run your business? Again recruit or promote a suitable successor, put a management structure in place, or as a last resort consider providing on-going consultancy.
By opening up the availability of your business to buyers that do not have the same sector expertise, you will increase the number of potential buyers, and therefore increase the number of offers.
It will also pay to develop a “hand-over” plan to transfer the business relationships to the buyer in an ordered way that will not disrupt your clients and cause them to consider other suppliers.
- Will key employees and suppliers stay on when you are gone?
One of your key assets is your staff. Can the buyer be confident that they will stay with the business after your departure? A good track record of staff retention as well as appropriate contracts will do much to satisfy the buyer of the ongoing commitment of the staff to the business.
In conclusion, think of your business from the buyer’s point of view, make it easy for them to see how they can make a return on their investment and you will achieve the optimum value for your business.
At Hornblower, we are always happy to discuss your plans for the future, looking at all the options for your exit as well as providing a free indicative valuation. Whilst our business is about selling businesses, we help you decide whether a business sale is right for you and your business before you engage us. Do get in touch to arrange a chat.
