How to Maximise Your Exit & Get That Money!
There’s nothing more disheartening than seeing somebody’s life work not generating them a maximised capital gain when they’re ready to move on. To realise the full extent of this value however, one must plan ahead.
Preparing your business for the sale in a way that maximises its value is a large undertaking, however successfully mitigating a buyer’s risks before they’ve even heard of your business, can literally 10x the valuation. Selling a business is hard enough at the best of times, so without the right risk mitigations in place, you may struggle to get interest in your business at all, let alone an acceptable valuation.
Acquirers think in terms of risk.
Will the business perform similarly in 5 years time post transaction?
Will our investment be ‘safe’?
Are the customers likely to stay? Same with the employees.
Does the owner have a secret formula that is the real reason behind the success?
Does the business have a great reputation or does the reputation actually belong to the seller?
Will the market continue to perform?
There’s a million risk factors that an acquirer will be considering when looking at your business/industry.
So what should a savvy business seller do?
The savvy business seller should proactively mitigate - or better yet, negate - any risk that may spook a potential buyer. This is the key to making your business more attractive to purchase than any other in your sector.
There are many factors that lower the risk of a business and therefore enhance the value of a potential acquisition. Some of the key factors for reducing the acquirer’s risk, and therefore increasing the attractiveness and valuation of your business are listed below:
Strong Financials:
Consistent financial performance of revenue stability, growth, expense control, margins and profitability.
Diversified & Strong Revenue:
Multiple revenue streams where seasonality has been addressed/mitigated.
Minimal Owner Reliance:
Business owners often don’t appreciate how much they actually do within a business. Can the business function perfectly - and grow - without the owner’s input for 3 months? If you as an owner can go to a desert island for 3 months and come back to a better business, you can add a few zeros to your valuation ;)
Strong Second-tier Management:
A robust and experienced team that will continue to run the business during and after the transaction as if nothing has happened.
Blue-chip Customer Base:
Having reputable customers is beneficial for many reasons, including giving your firm credibility, but also for their high likelihood to pay their bills in full and on time, every time.
Data & Reporting:
The business has proactively architected qualitative and quantitative data collection methodologies. The data is consolidated automatically and is instantly available to analyse. KPIs are known and benchmarked, monitored regularly.
Diverse Customer Base:
Businesses with a large and stable customer base are more valuable than those that rely on a small number of customers. A rule of thumb here is that no one customer should represent more than 10% of a business’s sales. Banks detest customer concentration.
Repeat Business & Contracted Agreement:
Recurring, re-occurring and contracted revenues are like catnip for investors. Long-term contracts and agreements with suppliers provide stability and predictability.
Barriers to Entry:
The more difficult it is for a competitor to replicate your business, the better. Things like intellectual property such as patents, trademarks, and copyrights brings value. Expensive assets counts here too i.e. does your business require expensive machinery to generate its revenue? How much would it cost somebody to set up a business to compete with you?
Competitor Mitigation:
Does your business have Unique Selling Points (USPs) i.e. legitimate reasons why customers will choose your business over your competitors? Can customers easily leave you for a competitor? Having clearly outlined, understood, implemented and demonstrable advantages over your competition drives up valuations. How much competition does your business have?
Technology & Management Systems:
How modernised is your business? Is the end-to-end process automated to some degree? To what level could human error impact your efficiency, quality, customer service or profitability?
Accreditations:
Are all licences, certifications and accreditations valid? Are governmental compliance audits perfect? Can you demonstrate that your business is a top performer when benchmarked against others in your industry?
Strong Digital Presence:
A strong online and social media presence is more important than ever. Do you have a customer database, email list and CRM system? Is your digital reputation strong and managed i.e. online reviews, articles, comments on social media tended to? Is your ditigal footprint comprehensive, consistent and consolidated?
Marketing:
The business has a documented marketing strategy that is being consistently executed, managed and monitored.
Of course the acquirers want all of the above crossed and dotted, but so do the suits at the bank. Why does this matter? Because most acquirers will be utilising debt to buy your business and the bank will make damn sure their investment will be safe. I’ve heard of many deals with determined buyers and motivated sellers falling over because banks simply refused to fund them. Don’t let that be you!
All of the above can be summarised as: Lower Risk = Higher Valuation. Think like a buyer and you’ll see what needs to be smoothed over in your business.
If your business has some, many or all of these factors tied up in a nice bow, book an appointment with us ASAP!
