Let’s start by asking ourselves if we know what our business is worth. Some would answer that a business is worth precisely what someone is willing to pay for it and what we are prepared to sell it for. So arguably the only way to value it is to put it on the market.
But if we take a step back it is strange that most don’t know what their business is worth. Strange because we know all the other figures – profit, average order value, debtor days, work in progress, sales pipeline value. By knowing how to value a business can help us understand where the value lies and maximise the areas of value within the business.
Some of the comments raised at a recent Business Exposure Group meeting highlighted the following points and all add to why a person would buy a business.
1. Market Share – overnight you can take out a competitor
2. Intellectual Property – this has value but in reality it is only worth something if it generates a profit
3. Brand and Reputation creates the most important value
4. Products and Services may compliment the acquirers business
5. Supplier Relationships may be better than the acquirer has to date
6. It costs a lot to train and harness a good set of employees
7. To scale the business into a new location
8. If a PLC buys a smaller business they can instantly revalue at a higher price on their balance sheet
9. Good housekeeping is essential so that when an approach is received is doesn’t create suspicion amongst staff, clients and suppliers
Having signed contracts, ownership of your website, domain names, software licences and
up to date statutory books are all examples of well-run and groomed businesses beginning
to be ready for sale.
The best time to sell a business is when it is doing well. Don’t leave it until it is too late, ie when you want to retire, because the urgency to get a sale will result in lower offers being made.
Notwithstanding, marketing a business for sale through a business broker is the best channel to create several interested parties and bring them to the table. Nevertheless, it takes many months to find an acquirer and further protraction of negotiation whilst due diligence and legal transfer takes place.
Research shows that most businesses don’t sell because either they are pitched at the wrong price or the seller is not talking to enough serious buyers.
Finally, if you can’t cope with the business changes on the horizon and can’t envisage selling, then perhaps you are better off hiring a new MD and continue to collect the profit without the day to day headaches of running a business.