Contributed by Philip Budd
12/05/2021 - Philip Budd
Evaluating the worth of your business is vital for every owner. No matter your motivation (selling or growth), it’s essential to understand the intricacies involved in determining its value and optimise its worth.
According to Forbes,
‘Approximately 30-40% of businesses listed for sale will be sold, and a majority of business owners that do sell end up disappointed’.
An independent valuation will help you mitigate the risks of this happening and help you focus on a successful endgame, whether that’s a sale or growth.
Knowing what your business is worth will help you drive the business forward for sale now or in the future and sell at a price you’re happy with.
Even if you’re not planning on selling anytime soon, it will also help you gain the insight needed to accelerate the growth of your business for expansion or franchising.
Notice how I’ve said value and worth? I haven’t mentioned price at all.
There’s so much more to business valuation than numbers, but to derive a final figure that you’re happy with, it’s time to understand where the value lies and how to optimise its worth.
A Sageworks study revealed,
Two-thirds of business owners agreed that “Getting full value for my business to fund retirement or other business interests” was their top goal in the transition of the business, yet less than 40 percent had a formal valuation conducted in the last three years, and 65 percent have never had their financial statements audited.
So, how can you increase business value and make it a more attractive prospect to purchase?
1.Create a transition plan.
Many business owners are woefully unprepared when it comes to stepping away from their business.
If you want more time for other projects, early retirement, or even looking to sell, you’ll need to transition yourself out of the business, so it still works without you.
Lack of planning will be detrimental to its successful continuation and, of course, its value.
According to the National Association of Corporate Directors, fewer than one in four private company boards say they have a formal succession plan in place, resulting in disruption, uncertainty, and conflict and endangers future competitiveness.
The results are even worse for family-owned businesses according to Deloitte,
Only 30 percent survive into the second generation, 12 per cent survive into the third, and only about 3 percent operate into the fourth generation and beyond.
Fancy sleeping better at night? Once you’ve identified where the real opportunities are in your business for potential buyers, they’ll start to seek you out.
Imagine if you could demonstrate a strong customer base, well-researched product development, a great company culture, forecast sales and potential for growth with a detailed roadmap for scalability – your business would be a very attractive prospect, wouldn’t it?
It’s time to redefine your roadmap. Flip it around and think about what you’d want if you were looking to buy the business –
Now it’s time to put pen to paper.
Did you know that 2% of business owners have a written plan… and even fewer stick to it?
If you want to sell well, you’ll need to get busy.
Your business plan needs clearly defined goals and financial targets that outline exactly where you are today and where you want to be tomorrow. Going through this process will naturally highlight the best opportunities that will optimise growth and increased value.
Your plan doesn’t have to be a huge weighty document; it simply has to comprise clearly defined goals, milestones and a step-by-step plan to help you get there.
Not only will this process put you in a strong position when potential buyers come to call, but it will immediately give focus to every aspect of your decision making and result in accelerated growth.
ALL buyers will be looking to uncover unexpected problems and potential liabilities.
They will be looking for any weakness in the business which could cause problems or prove costly after the purchase.
You’ll be bombarded with endless questions, so it’s wise to be prepared. A thorough audit of your business before is prudent before you even consider selling. This way, you’ll discover what the potential pitfalls are in your business, allowing you to mitigate the risk beforehand or at the very least prepare your answers.
The impact of the pandemic has seen a definite shift towards a buyers market.
If you’re looking to sell your business post-Covid, you’ll need to cross all your Ts and dot every single I.
According to Smallbusiness.co.uk their recent survey suggests,
“In the UK, over 54 per cent of the business buyers we surveyed had more than £50,000 in cash to use as a deposit and with 80 per cent of them believing that prices would come down as a result of COVID-19. Over 38 per cent of them intended to finance the entire purchase using their cash reserves only.”
The survey also documented valuable advice from entrepreneurs looking to purchase companies in the UK,
“Any business plan template should clearly highlight the COVID-19 impact on revenue forecast wherever the revenue stream is in order to gain trust and confidence. The goodwill of a business will have changed dramatically as a result of the crisis and banks will certainly be critical of it.”
A great solution to instil confidence in potential buyers while demonstrating transparency is to
create a sellers pack detailing the required documents. You can include your financials, forward agreements with suppliers and customers, business plan and forecast for sales and scaleability.
Inevitably there may be a level of suspicion from both parties as everyone will be cautious when significant sums of money are involved but remember: you want to achieve the best price for your business, and the buyer will want to know, unequivocally his ROI today and in the future.
Planning your exit strategy: How can I help?
Building value into your business begins on day 1. You’re probably familiar with the concept but is it driven by a need to achieve the ultimate goal? Retirement or selling the business?
My proven methods help business owners gain clarity on the long game and make the right plans for their future. With my help, you’ll be able to
For more information visit the Philip Budd Action Coach website
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