The best time to start preparing your business for its ultimate sale is the day you set up. The second best time is today.
A business that runs itself without too much input from the owners will be worth significantly more than one in which the departing shareholders still regularly work in the business or actively manage the team and customer or supplier relationships as a purchaser will be concerned that profits will dip when the incumbent stakeholders leave. Building watertight systems and processes and a team capable of running a business successfully can take many years so it’s never too early to start. Creating a company that isn’t heavily reliant on its founder(s) also de-risks the owner (ie protects them should they fall ill or be unable to work) and should give them a variety of options when they eventually decide to retire, whether this be a sale to a competitor or supplier, selling up to the management team or sitting on a beach drawing a monthly dividend safe in the knowledge their investment is in good hands. Having a bible of systems documentation and up to date, reliable financial information ready to hand over to a potential acquirer will fill them with confidence they know exactly what they are buying and make any financial due diligence process much less painful. It will also increase the chances of a tax efficient share sale rather than the less attractive option of a sale of assets.
In valuing a business a purchaser will look at both historical and projected profits and apply a multiple to these with the value of the multiple being dependent on a number of factors such as industry norm, risk and age of business. Ultimately, however, a company is worth how much someone is prepared to pay for it and multiple interested parties will drive the price up.
Our handy checklist, whilst not comprehensive, enables you to give your organisation a score out of 10 and will hopefully give you some ideas for ways to improve the value of your company. If you need help improving your score or would like an indication of the current value of your business then please get in touch for a free, no obligation, initial meeting.
