Thinking of selling a business? There are many things that can be done to maximise your business value, as part of a business development plan. But whether or not you wish to sell, it is as well to remember that many business owners do not plan at all, which may account for 3% of business owners with a written business plan, earning more than the other 97% added together! Here are ten ideas to consider if you wish to increase your business value prior to selling a business:-
Maximising Business Value (Pre-Sale)
1) Focus on selling. Nothing happens unless selling is taking place. Concentrate on selling the benefits of your products and services rather than just the features of your products alone. You don’t have to have the best products but an “outstanding service” can lead to an “outstanding performance”. Selling is a numbers game (it is easier to approach twice as many prospects than to suddenly become twice as good a salesperson) so make sure the activity level is going up – not down! Companies get strung along into receivership because they can’t sell or can’t get the money in. Ultimately, make sure that the sales process is not reliant on the business owner – businesses are difficult to sell “if the business owner is perceived to be the business”.
2) Understand your Unique Selling Points (USP’s). Make sure you understand your “unique selling points” and write them down – if you don’t understand them, how can your customers? USP’s can help differentiate you from the competition and enable you to charge higher prices. They will also help make your business more saleable, valuable and attractive to potential buyers for when the time comes to sell.
3) Increasing sales/profit record. Aim to demonstrate consistency, preferably with increasing sales/profits, it will help strengthen your negotiating position as the business will be perceived as less risky, thereby increasing value and one less reason to talk the price down. Remember that loss making businesses are difficult to sell – if possible, turn the business around first and then sell.
4) Develop a 3 year plan. Try to develop a realistic budget for the year ahead with a further two years of planning ahead, updated each year as part of your business plan. Ideally, you need to know where your future sales revenue and profits are coming from – likewise when you come to sell the business, the buyer will want to know that too.
5) Review the marketing plan. Marketing can be best summed up as “identifying and supplying a customer’s needs at a profit”. Treat marketing as an investment rather than a cost and work out how much you would be prepared to invest in order to gain a new customer. Review new markets for existing products or new products for existing markets (be wary of new products for new markets as this is where the greatest risk lies). Try, test and measure at least 10 different marketing methods to gain new enquiries and customers – cut out the ones that don’t work and invest heavily in the ones which do. Remember the 5 WAYS where you can influence how much profit you make:-
Number of Leads x Conversion Rate = Customers x Number of Transactions x Average Sale Value
Turnover x Profit Margin = PROFIT
6) Review the Customer Base. If your business becomes reliant on any one customer, the risk goes up and the value goes down. Make sure the risk is spread, with no more than 20% reliance on any one customer. If possible, market products and services to a broad range of industry sectors eg Public & Private Sectors to reduce the effects of any down-turns. Also, try and cultivate customers who are prepared to agree to “rolling contracts” (eg maintenance & service contracts or retainers) so that sales can be achieved with less effort, whilst become more predictable – businesses with rolling contracts in place are more saleable for when the time comes to sell.
7) Review prices and margins. The more profit you generate, the more valuable your business will be. People think customers buy on price but they rarely do – only 10 to 15% of the public buy on price as what customers really want is value for money – the prouder the price, the better the deal! The most successful businesses are customer led; they don’t necessarily have the cheapest products. Put prices up if discounts are required. Pricing is key to profitability but often misunderstood – for a 30% Gross Margin business, if you reduce prices by 10% then you will need a 50% increase in sales just to stand still; a 10% increase in price, you would need a 25% drop in sales volume before you start losing out!
8) Review the Management Structure. Businesses are difficult to sell if the Business Owner “is the Business”. Find ways of making sure the business is not reliant on the owner – look at the management team to see where additional responsibility can be taken on or consider employing someone to take on tasks to enable the business to become more “independent” of the owner rather than totally “dependent”. If the senior team is too small, consider taking on a non-executive Director or Consultant to benefit from their outside knowledge & experience and offer them as “continuity” when negotiating the business sale. Make sure Board meetings are held regularly with an Agenda and Minutes/Action Points recorded – don’t miss “future business development”.
9) Value your assets. The greatest asset in any business is People followed by Customers. But make sure you have “the right people, sitting in the right seats, before you start driving the bus” in the first place! Make sure everyone has a Contract of Employment and Job Description in place (these will come up in due diligence, when selling). Look after your key people – losing them at the time of selling a business will probably jeopardise the deal. Make sure that you are aware of the values of your tangible assets such as property, plant and equipment. A fixed asset register is often essential when discussing values with a buyer. Other assets include patents and intellectual property rights, which will all add value for when the time comes to sell.
10) Make sure your information is up to date. A well run and administered business will increase the perceived value and nothing puts off potential buyers off than lack of up to date information. This includes Statutory Accounts, Management Accounts, Order Book Values, Staff Contracts of Employment, Staff Handbook, HR records, Job Descriptions, Copies of Leases, Asset Lists, Business Awards/Certificates etc etc.
Our FREE Guide to Maximising Business Values – where we simply focus on relevant and proven ideas when planning for a more saleable business with a higher value.
“This is a very practical and invaluable guide on how to maximize the value you receive for your business. Roger Smith has captured the key essential points for business owners to focus on in order to obtain the best price for their business. You only sell your business once and so you need to plan for it properly for a successful sale. This guide will help you achieve this and I will certainly be recommending it to our clients.” Neil Phillips, Director – Phillips Chartered Accountants
“Stirling has produced a practical, common sense guide which advises those selling a business, often for the first time, on how to avoid the many pitfalls typically faced. Much has been written about selling the larger corporation (e.g. Finish Big: Bo Burlingham), but this paper gives a unique checklist for those in the SME space. Arrivista as a coaching firm helps companies get themselves in the right shape for sale – this guide neatly complements much of what we espouse”. Simon Williams, Director – Arrivista Ltd
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