There’s never a bad time to focus on increasing the value of your business. Your valuation is important regardless of whether you are interested in selling right now or not.
Many owners of perfectly successful and well-managed businesses find themselves sorely disappointed when they come to sell. They expect their hard work to result in a fantastic valuation for their business, but find themselves struggling to achieve offers anywhere near what they expected.
This just illustrates how vital it is to take steps to increase your business’s valuation all the time. If you follow the below advice on how to boost the value of your business, when you do finally find yourself in a selling position, you will have already done the hard work. You can simply sit back and watch the great offers come rolling in!
Think about it from the buyer’s perspective: You are unlikely to attract a strong valuation for your business unless you can think like a buyer and identify what it is they are looking for.
A strong, multi-layered management team with several senior players with their own specific expertise and training will be viewed extremely positively by buyers. If, as the owner and primary decision-maker, you struggle to give others control, buyers will be put off. Learn to delegate, train your staff and ensure they have the loyalty and morale to continue to do a great job following a change in ownership.
Having a well-documented strategic plan in place for your business that your entire management team is aware of, and on board with, is another factor that will help you to achieve a more favourable business valuation. Putting some time aside to think carefully about strategy is a wise move regardless of whether you intend to sell any time soon.
Any prospective business buyer will firstly want to establish whether your business model is scalable and, secondly, how easy and realistic it would be to scale. Put another way: is the plumbing in place to allow future growth?
Giving this some consideration as a business owner is a fundamental part of running the organisation well. You should always be looking to the future and at how you can grow your business. One way to help illustrate scalability and ease of scalability is to have your business processes well-documented so that they are able to be simply communicated to those not yet involved with the business, such as buyers or investors.
If you are too reliant on a small number of large customers, that vulnerability means your business will be less valuable than if you have a more diversified customer base. Therefore, it’s important to always be looking to win customers and illustrate that your product or service is in demand across a range of clients or markets.
Leicester-based 21st Century Technology, which offers technology services to the transport industry, has recently revealed that diversifying its customer base has allowed it to boost its pre-tax profits to £354,000 for the first half of 2018, up from a loss of £266,000 at the same time in 2017. Revenues also jumped considerably, to £6.4 million - a company valuation would, no doubt, have also increased.
Its CEO, Russ Singleton, explained: "The progress made in the first six months demonstrates that our strategy is beginning to yield positive results.
"Sales have increased with the addition of new asset clients and our customer base has diversified further in the UK and overseas.
"I look forward to reporting on our progress and expect our improved performance to continue."
Focus on improving cashflow
This is another fundamental part of boosting your business’s value. The health of your cashflow should be on your mind at all times when running your company and considering your business strategy.
It’s a good idea to start trying to bolster your financial performance as soon as possible, even if you’re not remotely interested in selling your business. This is simply because, as a business owner, you will inevitably want to exit your business at some point and this is likely to mean a sale. At that point, prospective buyers will start to examine historical financial reports to judge whether your business has a solid track record. They will also look at your projected cash flows into the future and are likely to place an even higher emphasis on this than your historical data. Astute buyers looking ‘under the covers’ of prospective businesses know too well that profits can often be manipulated using various accounting mechanisms. It is much harder to hide cash inflows and outflows which are true indicators of the health of the business. It is wise to draw up detailed cash-flow forecasts for your business so that these are available to buyers when you are ready to sell.
Sell at the right time
It goes without saying that, as a business owner, you should have an exit strategy in mind, ideally set out in writing. Either way, get thinking about this now if you haven’t already.
Consider when the right time will be for you to exit the business and how you intend to do this. Will you hand the business down to family or will you sell it? Will you wait until you want to retire or sell the business before you retire? If you wait until you retire, what if the business or the market in general is not in optimal shape at that point? Remember that if you do wait until retirement to sell, there will be so much riding on that one event. Think hard about the timing that is right for you personally, for your business and for the market. If you can align these factors, you will have the best chance of achieving your optimal sale price.
It pays - quite literally - to retain a level of flexibility in your exit strategy so that you can strike while the iron is hot.
Within the last month, the three Sherwoods Group Vauxhall dealerships in the North East have been snapped up by Drive Vauxhall in a deal that Sherwoods described as “too good to turn down.” The three dealerships had recently been performing well following a “tough year” in 2017. It responded to the difficult market conditions with restructuring and some redundancies, which helped it to improve its financial performance at a time when competitors were struggling.
This cost-cutting and refocusing had an immediate effect upon the business cashflow, which helped it stand out to prospective buyers.
The family-run chain of three dealerships have been in the area for 90 years and Simon MacConachie, Managing Director, explained: “It is of course tinged with some sadness. When you’ve worked with a great team like this for so long, with so many people with the decades of service as Sherwoods boasts, they become your extended family and it feels a bit like the end of an era.”
In conclusion then, considering your business’s valuation well before you plan to sell your business will stand you in good stead when the time finally comes, which could be just around the corner. The factors that boost your business’s value are the same as those that help your business to succeed so there’s plenty to be gained from ensuring you keep the end in mind, right from the beginning.
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