ENHANCING THE VALUE
OF YOUR COMPANY
The Value of your Company
Many business owners don’t think about ways to increase the value of their business before selling it. The ideal place for them to start is by putting together a plan of areas where you think your business could grow. If you have been thinking about expanding out geographically or targeting a new type of customer, now would be a great time to do this.
Increasing the value of your business before you sell it will also improve your chances of completing the sale. Most acquirers choose businesses that look to improve operations and financial results. Sellers might think that the best route for them is to get market feedback before they pursue business development, however, this route might be more unfavourable as it could potentially give a wrong indication of the value of the business.
It is suggested that you estimate the value of your business at every inflection point in the market. This also indicates that the value of your business fluctuates with the economy, just like property. Why not decide to engage with an M&A consultant, who can help to guide you through the process.
Understanding your Objectives
Before you start to understand what your options are, we suggest that you look at your personal objectives. Is there a particular value that you want to achieve? Are you thinking about having a succession plan for those on your management team?
Answering questions like these is a good start at defining your objective. You also need to take into consideration the objectives of your shareholders as they might be different from your own personal goals.
Other points to consider include the position of your business within the market, timing and any corporate objectives. Is there a date by which you would like to exit your business once it’s sold? It might be that you want to leave immediately, but you may wish to stay on a handover period. Another consideration is the ‘status’ of your business and where it sits today. If you understand what the business value is today, it will help with identifying any opportunities that can improve your businesses market position.
There are two main internal factors to consider here. Firstly, the financial position of the business and secondly, the staff you employ. Financial statements will be required during the due diligence stage of your sale. If your business has a surplus in assets and the capital expenditure supports growth, this will increase the value of the business. There are other internal factors which can impact the business value which are management accounts, the profit of the business, any incomes or losses, adjustments and profitability.
Your staff should also be a consideration when choosing to sell your business as you may depend heavily upon them to operate the business. The biggest question that you need to ask is whether the staff would stay on in the business. If staff wish to leave, there will be positions that need to be filled. This might seem a problem to potential buyers as a business is more attractive when they have a strong management team that already has the relevant experience in running the business.
External factors are just as important as any internal factors when it comes to valuing your business. You need to give careful consideration to the market outlook and trends and your business model needs to be able to demonstrate an awareness of any forthcoming changes. Proprietary products or services that are specific to your business are major selling points which can offset any negative market trends.
A competitor analysis should be carried out as well when you come to value your business. This analysis could reveal similarities between your competitors, which will allow you to adopt better practices and be different with your own business. It might also uncover any market barriers that are vital to new entrants in your industry.
This next step evaluates your business from the marketing plan to customers, advertising and products. If you have a professional sales and marketing plan you will be able to show continued growth, which makes your business much more attractive to buyers and will increase the sale value.
Your marketing plan needs to address how you plan to secure new customers as well as being able to show how you plan to create new products so you keep up with any competition within your industry. Your advertising efforts include your website, testimonials as well as any sales or promotional literature and will increase new business opportunities as well as improving brand awareness.
When you think about leaving your business, the hardest decision is going to be your ‘exit strategy’. You need to start researching potential buyers through buyer intelligence as well as reviewing all M&A activities alongside your consultant. By engaging with as many buyers as possible, the more value your business will become. M&A activities will be able to give you a better idea of your business value in today’s market.