Specialist M&A advisors Shield Corporate Finance Ltd are already warming up for a busy Q1 2011, when many business owners will be selling a business. In preparation for this busy period in M&A, Shield encourages business owners to think about value. And more importantly, how to increase it.
Shield is inviting business owners to attend a free open seminar in London, delivered by Shield’s CEO, Dr David Young, to address this important issue. Read on for a taste of what’s to come…
Selling a business? How to build value in a business prior to sale
Many business owners start their business because they believe they can make more money on their own than they can by working for someone else. And for most entrepreneurs that’s exactly what they do.
But having established a profitable business, stakeholder objectives often get hazy, with no clear end-game. Savvy entrepreneurs know that the easiest path from business owner with a reasonable income, to millionaire, is to start a business, grow it, and sell it.
The key to walking this path successfully is to have an exit strategy and know how to implement it. Put simply, the best exit strategy is to build something buyers want to buy. Get this right and you’ll be well rewarded for all the hard work you have invested in your business.
However, knowing what buyers want from a business is not always clear. After all, how can you really know without asking them? Well, one answer is…go and ask them! And one way to do this is to appoint a professional M&A advisor who understands business and mergers and acquisitions, such as Shield Corporate Finance.
Shield’s Market Testing service is specifically designed to help prospective sellers understand what buyers in their sector want. The outcome of this process enables prospective sellers to engineer their strategy to fulfil acquirers’ needs. The feedback Shield can obtain is gold dust.
Although this is by far the best way to understand what drives value in the minds of buyers, there are some common features which contribute to a business’ value. By focusing on some of the following factors you’ll be sure to boost the value of your business.
1. Go for growth - When it comes to valuing your business, growth is golden. The reason is simple. A buyer can afford to pay more for a business with profits that are growing than for one which is flat; the higher the growth of profits, the higher a buyer's return on investment is going to be.
2. Improve profit margins Profitability is the most important valuation metric. Buyers will be focusing on your profitability and, in most cases, will use it to value your business by applying a multiplier to the last full year’s reported profits. Do your research to find out what the industry norms are in terms of profit margins, and set the targets for your business higher.
3. Encourage repeat business - Sustainability of revenue and profit streams is something buyers love to see. Firstly, because it gives them comfort that the business has a tangible future. Secondly, because it can provide tremendous credibility to your financial projections. And finally, repeat business is attractive to a buyer because for most businesses the cost of customer acquisition is high and selling to a repeat customer is relatively cheap.
4. Make yourself dispensable As the owner manager of your business, being dispensable is the cornerstone of a successful exit strategy. However, it is often overlooked when it comes to sale. Most owners decide to sell a business when they want to exit the business. What they don’t realise, often until it comes to negotiations with buyers, is that a buyer will expect the owner manager to stay in the business for a couple of years after the transaction completes. The only way around this perennial issue is to prove to a buyer that the business does not depend on you, by empowering second tier management or by showing how little involvement you have in certain areas of the business, particularly sales and operations.
5. Eliminate Risks Think about what the risks are for a buyer of your business, and take steps to eliminate them. Such things as key dependencies (employees, customers, suppliers), inadequate contractual and IP protection, exposure to litigation and confidentiality of data should all be considered. Reducing the risks will make your business more attractive and more valuable. Buyers look for risks to play in their favour in negotiations. Pre-emptive risk mitigation will increase the sellers’ ability to push up the price.
6. Be clear on what you are selling Clarity on what is for sale is crucial in the context of a sale process because that is the ultimate question that buyers will be asking themselves when they are assessing your business. Understanding where the value lies and taking steps to enhance that element of your business will help boost its value.
As specialist sell-side M&A advisors, Shield understand what buyers are looking for in a business. Shield is uniquely placed to help prospective sellers build the value of a business in the run-up to sale. Shield’s Business Improvement Programme is designed to tackle systematically all the valuation issues inherent in any business. This is a process-driven consulting programme that results in value improvements across the board and ultimately enhances the sale price of any business for its owners.
Shield Corporate Finance was founded by David Young in 2001, with a determination to deliver remarkable results for sellers of businesses, in a world of financial advice increasingly biased in favour of acquirers.
This has taken their Merger & Acquisition team into fertile new territory, working with clients for a year or two prior to sale, in order to achieve best possible outcomes.
In addition to considerable expertise and success in handling business sale execution mandates and the commercial aspects of contract negotiations, they deliver unique consultancy services in Business Improvement and Recession-Proofing.
They will guarantee senior professional attention and total confidence throughout the whole the process. Shield works with companies with operating profits of >£500k, contact us today for a business valuation.
For more information and advice on selling a business, contact Shield’s Founder & Chief Executive Dr. David Young +44 (0) 20 7031 8265.