From our extensive experience of selling businesses, what continues to surprise us is how few clients have a clear, thought-through business plan – although a plan is essential to be well positioned for sale and achieve the maximum price.
Often enough, clients assume that they have a decent business plan. The reality is that it’s in the wrong format, or not robust enough to support a sale. Roughly half of the entrepreneurs that we advise have to spend time drawing one up or re-structuring an old, badly drafted plan.The structure of a good business plan will be set out over an initial three-year period. The first year of the plan can then be used as the budget. Ideally, owners should be looking to sell 60 per cent of the way along their plan so that further growth is still projected and it’s clear to potential buyers that continued expansion is achievable. This is crucial when selling a business and seeking the best value possible. To be credible, a business plan requires market research and analysis. Many businesses looking to sell neglect market research, making them unaware of their own position in the market and the wider patterns of growth or decline within their industry. A business plan needs to back growth strategies. Carrying out market research is more difficult if the information required is not publicly available, but the data is needed to draft an in-depth business plan, which will also support and underpin the company’s growth strategies – key to persuading buyers to pay top prices.
Growth strategies can be divided into two basic formsOrganic (based on new products, fresh markets and different pricing structures) and acquisition (requires an acquisition strategy and a supporting track record). The business plan should clearly identify which strategy is being pursued, and areas of growth should be clearly presented. If it’s an organic growth strategy that is being pursued then the key components, such as those identified below, should be highlighted:
- Revenues (clearly show sources, such as existing clients or products/new clients or products);
- Operating costs (trends and any reductions/improvement in processes);
- Gross margins (sustainable or not); and
- Net margins (include key factors underpinning trends).
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