Business owners often ask me what they must do to maximise the sale value of their business. It is not simply the bottom line that determines the sale price.
The most common issue is that the business simply will not operate effectively without the business owner and, when this happens, the business is worth very little, no matter how good the bottom line.
So you must think like a buyer and focus you on those areas that will create additional value and make you redundant from your own business in order to maximise your sale price.
For many the following are key strategic areas to consider:
1. Customer Diversity – If a large part of your business relies on a small number of customers, it can be a negative. So start focusing on diversification.
2. Management and staff – Ensure your business has a clear goal and that your team both understands it and their role in delivering it. If you have a great team in place, make sure they stay on during the transition process.
3. Systemisation – A buyer will have a greater value and desire for getting into a business where the processes are streamlined and systems are in place. Make sure you have a written system for all those business activities that are repetitive so they can be done consistently and quickly by anyone. No one person is vital to the successful running of the business – least of all you – the business owner.
4. Recurring Revenue – All revenue is not the same. If you have recurring revenue as a result of a contract or agreement like annual licensing fees, maintenance fees, etc. – these are much more commanding drivers of value than revenue pounds that result from projected sales or other such non-recurring revenue streams.
5. Desirable Proprietary Products/Technology that cannot be copied easily – A buyer will tend to value a business with unique products, services or systems higher than one that is considered as a “me too” business. So, find out what is unique about your business, and then think of ways in which your product/service is unique. Communicate this uniqueness effectively and you will be able to increase the desirability of your business.
6. Team of professionals – Using professionals like accountants and lawyers will help reduce the buyer’s perceived risk. It is essential to get your financials audited by a reputable accounting firm and use a good solicitor to go through the papers.
7. Product Diversity – A narrow product set increases risk and decreases value.
8. Key Performance Indicators (KPIs) – Make sure that you have a clearly defined and meaningful set of KPIs that not only show how the business is currently performing but also help demonstrate how it performed over the past year – this will demonstrate clear trends.
9. Written Growth Plan – A 2-3 page long written, strategic growth plan that identifies and lists the areas your company is expected to grow in can help maximize its value.
10. Book Keeping – Your style of book-keeping will greatly influence the buyer as this is an indicator of how your business was run in the past. A good quality book-keeping system also reduces the risk and helps during the due diligence stage.
During my own coaching session with clients, I use the concept of a ‘business in a box’ – one place where everything required to run the business is set out so that anyone – a general manager or a new owner, can take this and run the business successfully from day one without the input of the owner.
By following the points above, you will be able to achieve just that. In this manner, you will be able to shorten the sales cycle and maximize value.