How to maximise value when selling your business

An exit plan should be part of any successful entrepreneur’s strategy.  Here are 5 top tips to help you build this strategy and sell your business at maximum value.

1. Get your timing right

Growing a company to sell for prosperity is one of the most guaranteed ways to wealth, yet, just like roulette, the odds are stacked against you. Unlike roulette, business owners are able influence the odds.

Knowing when to stick or fold is a key part of business strategy and the timing of an exit is critical. Ideally sell before you peak, before the next wave of investment, with a great track record and when the market has prospects for your sector and you have a team able to drive growth beyond you.

It is also important to analyse the forecast net sales proceeds versus the net income you receive, versus the time wealth achieved from a sale. In terms of income, is it the right time for you?

When it comes to selling a business it is critical that you examine the facts. Factors such as time, wealth and personal drivers need to be seriously considered.

2. Ensure your business is worth its utmost

Prior to sale, owners should be looking at strategic ways to increase the value, not only through the level of profits, but also through addressing elements that will directly impact the business worth.

Owners should be looking to spend more time working “on” the business rather than “in” the business, increasing profits and making it more attractive to buyers. There are a few fundamental factors that can influence value; including:

  • Minimising the buyers/lenders perception of risk
  • Creating barriers to entry
  • Ensuring steady, recurring income that can easily and accurately be forecast where possible
  • Ensuring solid systems and safeguards are in place
  • Develop strategic long-term growth plans
  • Consider geographical and sector diversification
3. Select an advisory team with a proven track record

Undertaking a business sale is one of the most important financial decisions you will ever make and an advisory team take can make a real difference in maximising value and minimising distraction.

There are many legal, financial and regulatory issues to address. In addition, there is the matter of finding the most profitable buyer for your business and then negotiating and structuring the most advantageous deal, ideally in a competitive environment.

4. Leveraging the sales process

There are many ways in which you can strategically increase your business value. Correctly used, the sales process itself can significantly increase your deal value. A professional advisor can guide you through the process and manage it enabling you to concentrate on your business.

To help leverage the sales process you should aim to:

  • Create a competitive environment.  Careful research to identify and approach potential buyers that would benefit from acquiring your business will lead to multiple parties having a vested interest in buying. This in turn creates a competitive market driving your deal value
  • Position your business in the best light.  For example ensure that potential synergies, long term strategies and forecasts are carefully detailed.
  • Negotiate and structure the right deal.  An advisor can coach you on your role in negotiations and will lead these to ensure the right deal is structured. A good advisor will be able to leverage buyer’s motivation to ensure your objectives are achieved.
  • Manage and orchestrate all parties.  Again, an advisor can manage this on your behalf ensuring all parties are fully informed, deadlines are met and that the transaction stays firmly on track until completion.
5. Be prepared not to sell

This might sound strange but this but few vendors operate from a position of strength with belief in their company, product, service and most importantly its future strategy and worth.

Whilst you are trying to drive your sale price up; the purchaser will be battling to force it down.   They will use all sorts of tactics to grind down the deal value.  Your gain is their loss and vice versa.  You need to be fully armed to command a premium price and show no need to manoeuvre from your standpoint to suit their need to negotiate.

Understanding and, importantly, believing in your true worth both today and in the future is crucial to winning this battle.  You need to have strategic, contingency plans in place for the next few years.

Whilst putting together a strategic plan for the future may seem a strange thing to do when you are about to sale, it can dramatically increase your sale value.  Being clear on your alternative strategy to grow the business creates a powerful walk away position to leverage your negotiations and to optimise your sale price. 

It will enable you to counter any unacceptable offers.  It will make it easier to justify that, whilst you are interested in the approach, the price has to be right.  It needs to be a strategic buy. If the price is not right, the fact that your 3 year plan may substantially increase your value puts you in a far stronger position.

This takes away your attachment to the sale.  You no longer look “hungry”; if they are interested they will come up with the right offer.  If not, they are welcome to come back in 3 years time, when they may not be able to afford your company as it will have gone from strength to strength.

There are many aspects involved in a successful business transaction. Some of which will start prior to the sales process itself. It is important that you start considering these months before you decide to sell. Understanding the preparation and process will help ensure a successful transaction at maximum value and minimal stress.

Kevin Uphill is chairman and founder of Avondale and author of ‘How to buy and sell a business for wealth’.

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