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
These can vary from owner to owner but could
- The level of capital you
- Timescales and whether
payment will be phased or upfront
- The importance of maintaining
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
- A good mix and spread of
- An established supplier
- Modern plant and
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
Step 3: Learning to step
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
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
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
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
- Make sure you allow yourself
plenty of time for proper tax planning.
- Seek advice from experienced
corporate finance advisors and accountants.
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.