10 Steps to Optimise
the Value of Any Business
Step 1:
Ensure that your business is able to function properly if you’re not there
- If you’re looking to sell your business, any valuation will be based on its future potential. It makes sense to transfer both your expertise and skills to the new management team. Under your guidance, they will build new customer relationships.
- Ensure that customer loyalty is to the business and not to you.
- Encourage the management team to run the business alone – this will be a gradual ‘change management’ process. Make small changes until everyone is confident enough to take their share of responsibility. If you have the right team and systems in place, things will run smoothly.
- Pass on the responsibly for decision-making to your trusted team. This can be quite difficult for some business owners. You may need an outside consultant to help make this work. This is important and a key to business growth, whether you intend to sell your business or not.
Step 2:
SHOW A RECORD OF INCREASING PROFITS, SALES, AND CASH WITH GOOD FINANCIAL PROJECTIONS
- Any prospective buyer will want to see the growth and future earnings potential of the business.
- Selling a business is so much easier when you can see there is already growth - with proof of a healthy performance track-record.
- You need to show that your profits, sales and your cash are growing sustainably. Be aware that it’s not good to show increasing sales through cutting margins.
- Even though you aren’t going to be there, you need to show potential buyers that you have confidence in the future of your business. It’s important also that you have a good reason for selling.
- Be sure to convey the reason you are deciding to sell is an ‘option,' not a necessity.
Step 3:
REDUCE DEPENDENCY ON JUST A FEW CUSTOMERS, SUPPLIERS & STAFF
- A buyer will be looking to build upon what you’ve already got, not to fill any gaps created by the business sale.
- Sometimes changing ownership of a business can cause issues with staff, customers, and suppliers. A buyer will be reluctant to purchase the business if there is going to be potential problem with retention of key people. It’s vital that you are not overly dependent on any of these.
- The buyer is going to ask questions surrounding whether the business will be able to survive if it were to lose the best employees or its best customer. Be sure you can answer this.
- Your biggest customer shouldn’t account for any more than 10-15% of your sales. It’s acceptable for 80% of sales to come from the top 20% of customers. But do those 20% provide 80% of your profits?
- Look at ways that you can reduce the risk of losing your customers, suppliers, and staff by offering contracts, incentives, bonuses, etc. Transfer knowledge from key staff.
Step 4:
ENSURE YOUR BRAND VALUES ARE CLEAR, ATTRACTIVE & RESILIENT
- Your business is your brand. It’s a complex mixture of customer experience - of your products, services, people, and attitudes. It includes your premises, website, and everything people see, hear, and feel.
- Ensure that the vision of the value of your brand is understood correctly and shared by all your customers, employees, and suppliers.
- Carry out a customer satisfaction survey to ask why/ if your customers are loyal and see if they accord with your own viewpoint.
- How strong do you think your brand is? Are you able to explain the benefits to your buyer?
- How will your customers understand your company brand if you aren’t actively involved anymore?
- Your ‘brand’ and what you stand for must be clear, attractive, and resilient.
Step 5:
BUILD & REINFORCE STRONG LOYALTY FROM CUSTOMERS, SUPPLIERS & EMPLOYEES
- It’s certainly the case that when you sell a business life can be quite stressful and the situation can test the commitment of even the most loyal staff, customers, and suppliers. So what can you do to increase that commitment?
- Staff bonuses could be offered in return for a commitment to stay on in the business for a predetermined length of time.
- You could offer your customers rebates for future business, perhaps a three-year deal, or longer-term contracts with suppliers and customers.
- Encourage your management team to spend time understanding your customers more. Identify their preferences and lead the process of change they want to see.
- Show your customers the depth and breadth of the talent within your business – excluding yourself. This will motivate your staff because they will feel valued. Your customers will feel they are getting answers from a committed and well-informed team.
Step 6:
MAKE YOUR SERVICES/PRODUCTS EASY TO SCALE-UP & DIFFICULT TO COPY
- A buyer who views your business as something that’s a useful addition to their own range of services or products will probably ask themselves – ‘do I need to purchase the whole business or could I just purchase key assets and poach key staff?’
- Your business will be worth a whole lot more if it’s difficult to copy its operations.
- Do you have registered designs or valuable patents? Do you have a large capital base that would be expensive compete with?
- If you are satisfied that you’ve done all you can to make it impossible for competitors to take business away from you, it’s probably time to think about how you could expand your business. A buyer would like to grow what you have.
- If you offer in-depth knowledge and high levels of expertise, then you can demand a premium price for your products or service to keep your customers locked in.
Step 7:
MAKE SURE YOUR MANAGEMENT & FINANCIAL INFORMATION & REPORTING IS GOOD, UP-TO-DATE & RELIABLE
- If you don’t already delegate most of your management functions already, you need to start - it’s essential for both growth and the sale of your business.
- Use management and financial information systems which will keep you informed with accurate information as and when you need it.
- If you have encouraged your management teams to operate the business on a day-to-day basis, the information produced will be essential for them to make sound management decisions.
- In order to establish whether the business is dependent upon you, a key indicator would be to assign someone who will be in charge of setting up and measuring your business’ key performance indicators.
- The buyer will want to see that there is a history of accurate, complete, and reliable information, which covers every aspect of the performance of the business.
- Ensure that you have made available the full audited accounts to your prospective buyers which will show your performance over the past 3/5 years.
Step 8:
RUN THE BUSINESS AS THOUGH SELLING IS AN OPTION, NOT A NECESSITY
- Your best position is to have multiple buyers bidding simultaneously for your business.
- You need to demonstrate that selling your business is an option, not a necessity.
- You need to show that you have complete commitment to your business.
- You need to show enthusiasm.
- A buyer will look to see whether you have continued to improve the business, through product development, updating the website, training of staff, etc.
- By continuing to invest in your business you will show the buyer that you still believe in the business.
Step 9:
TACKLE ISSUES WHICH COULD LEAD TO LEGAL DISPUTES OR COMPENSATION CLAIMS LATER. ENSURE YOU’RE FULLY COMPLIANT.
- Most business sales tend to fail in the latter stages of the process due to ‘minor’ details. These can accumulate and cause the buyer to think there is too much risk.
- Ultimately, if there is a higher risk for the buyer, the value of your business is lower.
- The results from the financial and legal due diligence, may mean that the sale price (which was previously agreed in principle) will be lowered later.
- Relatively minor issues could potentially become a legal dispute or compensation claim for the buyer.
- For example - are you fully compliant on health and safety legislation, data protection, copyrights, etc., and are your shareholder agreements as they should be?
- Are there any outstanding disputes with employees? Or are there any claims outstanding with customers? Be sure that your employee contracts are up to date and that your trading terms and conditions are robust.
- Be sure to address whether the business has any future pension liabilities or potential claims for unpaid taxes?
- If any of the above can be resolved before you put your business on the market, you will have a better chance of achieving a sale.
Step 10:
ENSURE THAT FIRST IMPRESSIONS ARE BOTH POSITIVE AND APPEALING
- This is our step number 10. Ideally, we would recommend that you to go through steps 1 – 9 before you meet a potential buyer.
- Your first impression counts and is vital to selling your business. This could amount to anything from your knowledge of your business, your information memorandum, your website, or simply your first meeting with them.
- To influence your first impression, be sure your website, your brochures, the décor in your office, your operations and your reception staff are as they should be.
- Disorganized and undisciplined operations will show immediately.
- A great atmosphere that’s generated by happy and committed staff will also be apparent.
- Buyers will be more worried about unknown quantities, and the value they assign to your business will reflect the risks they perceive.
