The buyer is often the winner
Many businesses are sold at levels well beneath their true value. The sellers are often then amazed at the changes and enhanced profitability which a new buyer has brought to their business within a relatively short time of having acquired it.
What this means is that the purchaser has identified and exploited hidden value in the business. It means that the business was not properly prepared for sale.
The biggest sale of your life – prepare well for it
Business owners spend their working lives refining and improving their services or products before bringing them to market, yet the most important sales of their business life are Grooming a Business for sale handled as if nondescript pieces of real estate are being sold. If business owners wish to maximise the selling prices of their businesses they must devote time and resources to make the businesses appealing to the widest range of potential buyers.
Forget The Window Dressing
Last minute window dressing is not enough. Forget the lick of paint and forget about tidying up the stores. Superficial actions will not seriously drive up the selling price as these will be obvious to the buyer and will be discounted. Owners relying on the sale of their businesses for their Retirement Pots should remember that not all businesses sell and it is critical that this sale above all others is planned and executed in the most professional manner.
Ideally preparation for sale of a business should take place well ahead of the planned exit time, for the business to appear most attractive to potential buyers. Look at your business through the eyes of a buyer and be buyer ready!
So what are buyers looking for?
The key here is to focus on the Business Value Drivers – those critical factors which are capable of creating value and equally important, those factors which are capable of destroying value. Value Drivers are at the core of your business performance because they are frequently ‘Lead Indicators’. They are indicators as to Grooming a Business for salehow your business will perform in the future. (Financial performance is a ‘Lag Indicator’ – it is an indicator of past performance and is of lesser interest to a buyer.)
Business Value Drivers
Here are some of the most common Value Drivers:
- Management Depth: Is there a management team in place? Can the business operate without you?
- Decision maker: Does it all revolve around you?
- Customer Spread: Are your sales spread over a large number of customers or do you have one or two major customers that account for more than (say) 40% of sales?
- Happy Customers: Do you have great products / services / prices? How long have they done business with you? Are they loyal or do they only buy from you when you have special offers?
- Competitive position: Do you have a market niche which is defensible?
- Recurring Revenue: What part of your future income is solid?
- Growth Record: Are the gross sales and profits of the company growing?
- Employees: How good are they? Will they stay after the sale?
- Records: Are they accurate and up to date?
- Are there comprehensive Operating Policies and Procedures in place?
These are the kinds of questions a potential buyer will ask beyond the numbers when starting to value your business. Time spent ahead of the sale in dealing with these key factors will not only improve the market value directly but will also improve the profitability of your business, enhancing the market value even more.
The Grooming Process
The Grooming Process offers you a way to present your business in optimum condition to raise the valuation that prospective buyers put on your business.
FBSA can guide you through the Grooming Process:
- We will identify the strengths and weaknesses of your business
- We will give you a realistic valuation of your business at that initial point in time
- We will identify the value drivers for the business and help you develop a plan to address the key issues.
- If required we will provide hands-on assistance to help you implement the plan
As part of the sale process a serious buyer will usually need to be given access to detailed information about your business to satisfy him/herself that the information given by you, the seller, is accurate. Representatives of the buyer will go through the information in detail in a process called Due Diligence.
Issues identified during Due Diligence often delay the sale process or lead to a reduction in the sale price and may even derail the sale.
As part of the Grooming Process we identify potential Due Diligence issues well in advance, giving you time to have them resolved before the business is put up for sale.
Embedding Good Practice
The Grooming Process will typically last for at least 12 months before the business is put up for sale, with the result that value improvement initiatives implemented are treated as normal, embedded practices by sale date.
Grooming is good business practice carried out to enhance the value of your business and to make it more appealing to a wide range of potential buyers.
Call us for a free consultation
If you are interested in an informal chat then please contact us. We would be delighted to help!