Five Reasons you’re Burning Away Value and How to Put Out the Fire!
If you are thinking about selling your business your immediate questions might well be ‘How much is my business worth?’ and ‘How do I increase the value of my business?’. But one of the things we encourage our clients to consider is what might be holding the valuation down, and how this can be addressed before going to market.
Here are five of the most common causes of depressed valuation and how you can address this when it comes time to sell up.
Financial Irregularities
This is not talking about fraud, or seriously dodgy accounting practices – although if they are present you need to do something major about it quick! But even small discrepancies, inconsistencies or creativity can have a downward impact on value. This is because even honest mistakes create doubt in the mind of a buyer and increase the risk profile of the acquisition in their eyes.
The good news is that this is relatively easy to do something about. Giving adequate time and attention to the preparation stages of taking a business to market should allow you to identify any areas of concern. A third-party like Entrepreneurs Hub can help with this, after all an independent pair of eyes is always helpful when it comes to figures.
A Red-Tape Tangle
This could take the form of being behind on legislation changes, out of date paperwork, unsigned contracts, or just simply a bit of a disorganised filing system. It’s well worth taking the time to straighten things out, a perceived messy business will be worth less in a buyer’s eyes.
The more serious side to this is serious litigation against the business, not small payment disputes, but things that may have a lasting and damaging impact on the company or the brand. As with all of these issues, it needs to be addressed at the appropriate time – it doesn’t need to scupper a deal, but you must not try to hide it.
Diversity
You might be thinking that diversity is a good thing, and you are right of course, in most cases. But for diversity to really add value there needs to be a complementary link between the diverse elements. A common example is property. It’s not uncommon for a small business owner to also own a rental property or two, and not uncommon for those to be held within the business. However, when it comes to selling a business, these can be a complication that is ultimately detrimental to value. Anything like this should be extracted from the business as part of the preparation for sale.
Obsolete Technology
When buying a house, it’s not unusual to identify a few things that need updating, refreshing, redecorating, or completely ripping out and starting again. These are then often used as negotiating tools to drive down the price. In the same way business operating systems or technology that is obsolete, will drive down the valuation.
The negative impact on value will almost certainly be greater than the cost of upgrading systems, so if it is feasible to do so, it is worth ensuring that systems are brought up to date – or at least plans are in place to facilitate the upgrade.
Balancing On A Point
A former colleague of mine was very fond of the saying ‘you are balancing the business on a point’, usually accompanied by an appropriately triangular hand gesture. What he was referring to is quite common among small, and even some quite large businesses, in that a significant majority of their work comes from one source.
This has probably been quite good for your business up to now, but a buyer will see risk in this. What if the client doesn’t like the transition of ownership? Or more basically, what if the work simply tails off due to a change in strategy or the economy, or some other reason beyond your control?
As with everything in this list, it doesn’t make your business unsaleable, but it may limit the offers you will receive. If this is a concern you might want to consider investing in a sales drive to broaden your client base and reduce the perceived risk in the mind of a buyer.
So, in conclusion, it’s worth thinking about things that are dampening the potential value in your business as well as things that will increase value. You may find that some simple changes and preparation can significantly change the profile of offers you receive.
If you want to talk to someone about how to identify and address these issues, Contact Us – we’d be delighted to hear from you.
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued using a multiple of its profit, usually EBITDA or adjusted net profit. The multiple depends on factors such as growth potential, recurring revenue, customer diversification and management strength. Professional valuation provides a realistic price range and helps position the business effectively for buyers.
Determining your business’s value is more than just calculating a number it’s complex with key factors, that said the basic equation is actually quite simple. Read more…
How long does it take to sell a business?
Selling a business in the UK typically takes between six and nine months from preparation to completion. The timeline depends on business readiness, buyer demand and the complexity of due diligence. Early preparation and clear financial reporting can help shorten the process.
When is the best time to sell a business?
The best time to sell a business is when it is performing strongly, growth prospects are clear and you are not under pressure to sell.
Business owners often achieve the strongest outcomes when:
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Profits and revenue are growing
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Financial records are clear and well prepared
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There is visible future growth for buyers
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The owner has planned the sale 12–18 months in advance
Market conditions can also influence valuations. Strong buyer demand, sector growth and favourable economic conditions can increase acquisition activity, but a well-prepared business can attract interest in most markets.
Deal activity often increases during spring and autumn, although transactions complete throughout the year. In practice, preparation and business performance usually matter more than trying to perfectly time the market.
Ultimately, the best time to sell is when both the business and the owner are ready, with the company positioned to demonstrate strong value to potential buyers.
Do I need an adviser to sell my business?
Many business owners choose to work with an M&A adviser to manage the sale process. Advisers help value the business, approach qualified buyers confidentially and negotiate terms. This structured approach can increase the likelihood of achieving a higher value and a successful transaction.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymous buyer approaches and strict non-disclosure agreements. Potential buyers receive limited information initially and must sign an NDA before any sensitive details are released. Business owners approve prospective buyers and maintain visibility over all documentation throughout the process.
How do I value my business before selling?
Valuing a business before selling usually involves analysing profitability, identifying valuation multiples and assessing key value drivers such as recurring revenue and customer concentration.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…