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10/11/2015

Getting maximum value - 5 steps for selling your business at the right price

By Chris Griffiths

After years of hard work, you’d think that every business owner would want to sell their company for the best possible price, yet every year hundreds of businesses in Wales are being undersold - down to a lack of succession planning.

Without proper planning it often becomes much easier for a buyer to chip away at a business’ valuation through the due diligence process, reaching a final figure that is below the vendors expectation and not reflective of all the years of hard work invested in building the business up.

The key to avoiding this is to have clear succession goals at the start, begin your planning early, build it into the day-to-day running of your business and ensure you have an effective transition plan in place.

5 key steps to achieving the right price for your business

Below are five key steps to help you create a long-term succession plan to maximise the value of your business when you sell it:

 

Step 1:  Set your personal goals 

These can vary from owner to owner but could include:

  • The level of capital you require
  • Timescales and whether payment will be phased or upfront
  • The importance of maintaining family/local ownership

Being clear in your own mind about your valuation goals will not only inform your planning, but also help determine realistic timelines.

 

Step 2: Maximise value

Certain aspects of your business will always be value-builders, such as:

  • Intellectual property
  • Stable industry/sector
  • Strong reputation in key markets
  • A good mix and spread of customers
  • An established supplier base
  • Modern plant and equipment

Be honest with yourself and consider how your business currently measures up, then think about how you can enhance your business’ value-builders and develop a business plan accordingly.

 

Step 3: Learning to step away

Stepping away from the business you’ve worked so hard to build up is a difficult, but important step, regardless of how you decide to dispose of your business. Some key issues you’ll need to think about include:

  • Telling your employees, managers and stakeholders about your plans.
  • Identifying your core management team and any potential successors.
  • Recruiting to fill any obvious gaps in the management structure.
  • Developing a decision-making process with clearly defined roles and responsibilities.
  • Enabling your management team to build effective relationships with key customer/supplier contacts.

Remember your business will be worth more and you’ll have more options to sell it if it can stand on its own two feet without you.

 

Step 4: Get the business ready for sale

Once you have clear goals in mind and you’ve started to step back, you can start to get your business ready for sale. This will mean thinking about:

  • Identifying issues that could arise in due diligence and addressing them beforehand.
  • Ensuring you have good management information at your fingertips as well as a strong and established system for accurately capturing and reporting it.
  • Developing a track record for robust budgeting – potential buyers will look at how realistic previous years’ budgets have been.

Be aware not to take too much cash out of your business prior to sale - you will get more value in the medium-term by using it to build a stronger balance sheet rather than extracting it in the form of bonuses or dividends.

 

Step 5: Plan the transition

To get the best value for your business you’ll need a properly planned and implemented transition and this won’t happen overnight, so remember:

  • Establish a timeline for the transition and keep measuring your progress against it.
  • If you’re selling your business to your existing management team, give them time to build their confidence, flourish and see if they’re up to the job.
  • If you’re selling to an external buyer, consider accommodating the finance options open to them.
  • Make sure you allow yourself plenty of time for proper tax planning.
  • Seek advice from experienced corporate finance advisors and accountants.

Think long-term

While each business is different, the strongest succession plans are often longer term taking years rather than months. It is important to analyse your business first and identify the areas you can improve on to add value before looking for a buyer.

Don’t overlook your current management team as their knowledge of the business will be strong and their valuation is more likely to be more accurate than others due to their knowledge of the company and industry.  

Think about how potential buyers will fund their purchase and be as imaginative as you can about the type of deal you’re prepared to accept.

Finance Wales can support a full range of business succession options. To find out more about how we can help contact us.