How do I increase the value of my business?
There are many articles and posts which have talked about all the things you can do to improve the value of your business and improve the likelihood of achieving a successful sale. Most of them focused on improving profitability, reducing costs, systemising your business, improving policy and procedures, updating your IT and automating your processes. Many are focused on the sales and marketing aspects for building an automatic funnel of leads, building recurring revenue, locking existing clients into long-term contracts. Others give you plans around selecting the best business broker, advertising the business on the best websites etc. Sometimes HR and people are a key issue and so an Employee Share Ownership Plan (ESOP) is implemented.
We do many of those things in our work with clients on maximising the value of their business and they can all improve profit which is one side of the valuation equation. None of them make as much difference as the most important thing you can get right in preparing your business for sale.
The most important aspect is to identify and attract the right buyer!
This is the easiest and fastest way to drive up the multiple (the other side of the business valuation equation) and ensure you maximise the value of your business when you sell. A strategic buyer will always pay more for your business and almost as importantly, they have probably done this before and so will be efficient and professional.
In many cases, but not always, this could be a listed company and that’s even better. They typically trade at multiples in the early teens (the long-term PE average for the ASX is 13.73), some much higher depending on the industry. They are often cashed up and have access to funding for acquisitions and therefore they become great buyers.
Importantly, this aspect of preparing a business was often overlooked. It takes time and effort and a level of expertise. Some business owners (mostly those that have left succession to late) don’t have time to implement this strategy properly, but for those who do, we have seen successful sales to strategic buyers including listed companies at multiples of 6, 8.2 and even as high as 9.5!