Thursday, 4 April 2013

Selling Your Business Is More Than Just A Great Bottom Line

I wan't to know how to value my business. Aren't profit margins the most important aspect?

The past few months, and more importantly, the past few deals we have had completed have highlighted that selling your business, and achieving either the highest value or best deal structure, does not always depend on a great bottom line. I am definitely not saying that strong profit margins are not essential, in effect they are. But I always inform clients that the primary factor which drives a purchaser’s mindset when buying a company, and therefore the price they could be willing to pay, is why they are buying you in the first place.

Whether you have taken advice from your accountant, a financial advisor, Google or even a business transfer agent, the main emphasis is always on, “what profit are we working with?” And, “what are they multiplying it by?” If you have had that conversation, (and you may have done with me) then you were absolutely right to do so.  Every sale has to start somewhere, so why not start with a good idea of what you may be worth on traditional methods.  However where that number ends up at realistically, always falls back on why someone wants to take your company off your hands in the first place.

To what degree does this affect how to value my business?

When you come to market, a purchaser may make you an offer on purely a market share purchase, or just because you’re in the next town down from them, and therefore they may not always the best person to offer you the greatest return on your investment, or the best deal structure moving forward.

From my point of view, I want a buyer for my client that NEEDS their business for a multiple of reasons. Geographically, market share, complimentary service or sector, staff knowledge, brand goodwill, I could go on. The more of these I can tick off, the better, and can only help make THAT buyer spend more money than the next.

Therefore when you start to think about selling your business, not only do you need to get specialist advice on the realistic sale price, but it can also be a worthwhile exercise to sit and think, “Why would someone want to buy me, and why would they pay me a premium price?”

My colleague Adam Croft always says the same thing, “Two companies with the same turnovers and profits, are not always worth the same money”, and he is absolutely right. Now sometimes there is not a great deal you can do to increase significantly a value of a business other than increasing your profits. But understanding your business, and what makes it special or stand out, will help you understand how far that sale value could go, or, at least realistically get you to understand how far it may not.

So how can I best gain control of this process?

TIME. Time to understand your business and realistically how much it’s worth, and from my perspective, time for me to find you that buyer that just NEEDS your business rather than just wanting it.

Two deals we have completed recently have over achieved on “the norm” due to this sort of thing happening. One was valued at around four times its adjusted profits or EBITDA, but completed at nearer to eight! Yes eight! But both have also received large amounts of cash on day one and with deferred payments rather than performance related deals. The buyers in both cases NEEDED that purchase to go through, and boy did we make them maximise this need.

Other deals look like they could be heading this way, and time, like I said is key for me. The longer you can let me have to find that buyer, the more chance I have of finding them for you.

Therefore while the year has started off well, premiums are starting to rise and deals more favourable, why not drop me an email or give me a call to discuss how I can proactively and confidentially afford you a bespoke brokering service?

Ian Charlesworth, Senior Valuer

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