Succession and Exit
How much is your business worth actually?
At first sight valuing your business on a simple multiple of profit may seem obvious but if you want to exit on your terms and maximise the value of the sale then it really is worth taking a closer look at many other factors.
After a challenging period for many UK businesses the economy is beginning to show signs of recovery. This upturn may prompt many business owners to think that it could be a good time to review their exit plans. Unless you are a serial entrepreneur selling your business is likely to be a ‘once in a lifetime’ event so it is extremely important that you get the maximum return for all your hard work. For many business owners achieving a good price for the sale of their company will mean the difference between an average or a very comfortable retirement.
The most important point to remember is that the true value of a business is what someone will pay for it, and that this will be different for each buyer and type of buyer. By and large, buyers fall into four main categories:
• strategic buyers
• financial buyers
• asset strippers
• employee ownership purchase
The strategic business buyer will look at the return on investment they can secure from the business through synergies with their current business such as reduction of overheads, and maximising sales via shared customer bases and routes to market. This is probably one of the best types of business buyer as they will value your business and recognise the strength of both your fixed and intangible assets. Understanding this buyer’s strategic drivers is an important element in negotiating the right price and exit arrangement for the seller.
The financial business buyer is basically looking at your company as an investment which will give them a fixed return. In some ways this is like a buy to let investor who is looking for a particular yield from their properties. Generally, they will leave the business to be run on the same basis with perhaps some small changes to improve profitability.
The asset stripper looks at the value of your business assets on an individual basis and is not interested in the future but merely maximising the profit from the sale of the individual assets. These buyers are normally only involved in distressed sales so should not be of interest to business owners who want to maximise the value of their life’s work.
Employee ownership is becoming an increasingly popular option for an owner to exit, reward their employees in the process and protect their company’s future. One of the best-known companies to adopt this model is John Lewis but there are many others including Richer Sounds, the hi-fi specialist retailer and Aardman Animation, the Oscar winning creators of Wallace and Gromit. It may not be the right option for every business owner, but it is well worth considering as there are many tax benefits for the seller and the employees – see the link here for more details on the SPUK website.
When we speak to new clients who are looking to exit and plan their succession, often one of the first questions is… “So what do you think my business is worth?”. At this point we start a journey with them that will reveal the optimum value of their business and ensure they plan their succession so that everything will go smoothly, and they can exit on their terms.
Of course, financials are important but at Succession Plus UK we use a proven 21 step process that looks at all aspects of the company and allows the owner or owners, and their management team, to be fully prepared so that the eventual exit is successful and meets the expectations of all parties.
We look at the business in a very detailed way and, in essence, we are pre-empting the due diligence process that a buyer will put in motion before they agree on the right price for the company. We review business plans, sales and marketing, organisational structure, systems, financial forecasting and analysis and governance so that when the time to go to the market comes the business and its owners are fully prepared, and match fit so the price achieved will be maximised and will be much more than if an owner had simply used the profit multiple formula and placed the company via a business brokerage firm.
So to answer the question posed at the beginning of this article requires a thorough review of the business to ensure that the eventual price achieved reflects the real value of the company and allows the owner(s) to exit on their terms.