When Business Owners start their business selling it is normally the furthest thing on their mind. When the time comes to move on just shutting the doors is a waste of the blood, sweat and tears that has gone in to developing the business; it also leaves the team feeling deflated and looking for work.
When should I Start Thinking About Selling my Business?
The goal of any business is to ‘Build a Commercial Profitable Business that Can Work With-out Me’. Using that as your premise means that you start building your business so it is fit for sale as soon as possible.
What are Purchasers Looking For?
There are lots of different reasons businesses are bought. It could be to merge with another business, or an investor looking to bring in a General Manager and drive profits.
You may have heard that valuations are normally a multiple of EBITDA. That is earnings before income tax, depreciation and amortisation. Turnover is not representative of a successful company, profit after costs is a better indicator. The multiples of EBITDA will vary, the easier it is to run without the Business Owner and if there is a tangible uniqueness about your business the higher the multiple will be.
What increases the value of a Business?
John Warrilow wrote a book called Built to Sell, based on his findings Warrilow developed an assessment called Value Builder. Researching over 30,000 businesses being sold across a range of industries he identified 8 areas that can increase the value of a business by up to 71%
Financial Performance: Your history of producing revenue and profit combined with the professionalism of your record keeping.
Growth Potential: Your likelihood to grow your business in the future and at what rate.
Switzerland Structure: How dependent your business is on any one employee, customer or supplier.
Valuation Teeter Totter: Whether your business is a cash cow bringing the money in or a drain
Recurring Revenue: The proportion and quality of automatic, annuity-based revenue you
Monopoly Control: How well differentiated your business is from competitors in your industry.
Customer Satisfaction: The likelihood that your customers will re-purchase and also refer you.
Hub & Spoke: How your business would perform if you were unexpectedly unable to work for a period of three months.
These 8 areas are reviewed in an online questionnaire which identifies areas of improvement. Combine this with the ActionCOACH framework to build a successful business and the formula is in place to build maximum value in your business.
What are the Biggest Wins to Get My Business Ready to Sell?
All of the areas detailed above are important, there are a few I would consider to be a great place to start:
It may sound obvious… knowing your numbers is absolutely vital. EBITDA is looking directly at your profits, drive those and your business gains value. By tracking performance you will have the evidence that the profitability is sustainable.
Business Owners build the company from the ground up, continuously improving as they go. The challenge is the amount of knowledge and experience that is in their heads. The more best practice can be pulled out and documented, the easier it is for the company to operate consistently with-out the Business Owner being there.
A strong leadership and management team ensure that strategy and its implementation are fulfilled. Communication is key, Verne Harnish wrote about this in his book ‘The Rockafella Habits’. Communication should be like a drum beat through the company.
Harnish identifies 3 things vital to maximise value in your company:
- Targets – clear priorities
- Data – to map progress towards the goals
- Rhythm – communication of the progress
If you are looking to set your business up to sell and want to discuss any of the concepts mentioned here or want to find out how to complete the Value Builder Assessment please get in touch.