One of the biggest strengths your business has always had is the ability to put yourself in a customer’s shoes and anticipate their needs. When you’re thinking about selling your business, this doesn’t change. If you’re wondering “How much is my business worth?”, imagine you don’t own it and consider what you would pay.
The future owner of your business is perhaps your most important customer. Every buyer will have slightly different objectives for purchase, but there are common drivers that will affect the decisions of most and these will ultimately relate to the value of your company.
How much is my business worth?
In the past, we’ve looked at what positively impacts the value of your business but it’s equally important to be aware of the factors that can negatively impact sale value so you can address these and improve. Of course, there are many but we’re going to highlight the three that typically cause the most issues for business owners who are trying to sell. As a corporate finance company, we’ve worked with all types of businesses – and when we see buyers hesitate or pull out of negotiations, these are the usual suspects…
If you recognise any of these in your business, don’t panic! Think of them as signposts for how to get your business into the best possible shape it can be – so you can walk away knowing you’ve sold your business for the optimum price and got the best deal.
Dependency
Think about what fuels your business success. Do you have a product that’s truly unique in the market? Perhaps your brand is considered the gold standard in your sector, or your reputation is Teflon-coated with years of major name endorsements. All these features can be bought with the business and are not likely to be dramatically affected by who owns it. However, if the fuel behind your business success is YOU – be that your network of customer relationships or unique skills and knowledge only you possess – your proposition starts to look less appealing to an outside buyer.
Cloning yourself might seem like the only solution but rest assured you can circumvent this obstacle – it might just require a bit of time. Evaluate the scope within the business to train current or future staff in your skillset and think about whether you can bridge the transition for your customers with events or meetings in which you can introduce them to your successor and retain their confidence in the business after your departure. Show your buyer you’re taking these measures and they’ll see greater value in buying your company.
Poor financial reporting
One of the first things any potential acquirer is going to ask about is your financials. This is one area where having adequate documentation in place is imperative to achieving your best sale. Poor financial reporting will reduce the appeal of your business and deter a buyer like nothing else. If you want to demonstrate the value of your company, make sure you can prove it by presenting consistent sales reporting, management accounts, and statutory accounts.
Trying to catch up on financial reporting is a nightmare, so even if selling your business is on the distant horizon, make sure financial information is always up to date, readily available at your fingertips, easily accessible, reported and reviewed on a regular basis (i.e. monthly management accounts). If you can provide accurate forecasting enhanced by actual vs. planned performance with actions, even better. All reporting should be accurate to the point that it can be challenged, defended and evidenced. Remember to use universal terminology rather than in-house acronyms so it can be clearly understood by all parties.
Unresolved litigation
Nobody wants employee disputes, ongoing customer complaints or PR nightmares but experienced business owners know they can come with the territory of even the most established brands. One well-known model of smartphone was going to be one of the best of recent years but such claims were undermined by the tendency of its battery to catch fire on airplanes, prompting a massive recall and replace programme. And who can forget that established car manufacturer’s massive PR fail when it claimed its vehicles were environmentally friendly, but had actually installed software that detected when cars were being tested and changed the performance temporarily to reduce emissions?
The point is, if you have a strong brand and your business is doing well then litigation or a serious issue won’t necessarily mean you can’t sell. What matters is that you can prove you’ve taken all the right steps to rectify and resolve any problems. Those interested in buying your business may not be put off if you can show them any unresolved litigation is being managed and documented appropriately, hopefully covered by insurance. If you’re working with legal advisors, risk management consultants or a PR agency, their expertise and advice should be called upon to allay the concerns of acquirers.
These just a few of the factors that might affect the value of your business. If you’re planning to sell your company, make sure you spend some time with an advisor from a corporate finance company such as Entrepreneurs Hub. Give them the whole picture, especially if there are current/potential litigation or issues in your business. This will enable them to assess saleability, how much it’s worth and the sale you could achieve if you address any aspects that might be reducing the overall value.
Contact us in confidence to find out more about how to prepare to sell a company for maximum value. Call 0845 067 8678 or email info@entrepreneurshub.co.uk
