A common problem for business owners when selling a business is that your view of what the business is worth may be very different from that of a prospective buyer.
Ultimately, your business is only worth what the highest bidder is prepared to pay and timing is key. Age, illness, family pressure or business problems often dictate timing.
The best time to exit will be driven by the financial climate, buyer activity and market trends but heavy reliance on one person, product or customer to keep the business going may make it nearly impossible to sell.
The price a buyer will pay for a business will mainly be based on historical accounting information and will be strongly influenced by the current profitability, expected future earnings and the risks involved in achieving those earnings.
When valuing your business the following areas should be considered:
· The business history and its future prospects
· Forecast cash flow, turnover, efficiency, costs and profitability
· The performance and recent deals of similar businesses in your sector for benchmarking purposes and pricing indicators
· The asset backing of the business
· The strengths, weaknesses, opportunities and threats (SWOT) of the business and the impact of these on the risk to future earnings.
Buyers will often look at a number of “value drivers” to assess the value of a business. To ensure your business is in good shape prior to a sale, your exit plan should focus on achieving a number of universal and industry specific value drivers.
Universal Value Drivers
· Strong management team
· Good growth prospects
· Good performance
· Limited dependence on individual staff members, customers or suppliers
· Quality staff, customers and suppliers
· Strong internal control systems
· Relevant and timely reporting systems
· Good asset backing.
Industry-specific Value Drivers
· Position of your product / services
· Stability of growth within the sector
· Business resources like technical expertise and workforce skills
· Operational resources like property
· Metrics e.g. stock turnover / debtor days.
Grooming of a business is aimed at fine tuning as opposed to radical transformations and the extent to which you groom your business will depend on how early you start.