To understand how to increase the value of a business, you need to recognise what affects business value and how the value of a business is calculated. A professional business broker or business valuer will perform a company valuation to find out how much a business is worth, and then recommend how this value can be maximised. There are many company valuation methods that can be used to calculate business worth based on business assets, entry cost and industry rules of thumb.
When your client begins preparations to sell a business, they will often seek advice at this stage on how to increase business value ahead of putting the company up for sale. A business transfer agent can advise your client on how to present the business in an exemplary fashion and what steps to take to achieve this.
The Ernest Wilson team of business transfer agents who work with 2020 and their members, shortlist key factors your client must consider when they prepare a business for sale with the view to maximise the sale price.
Business health review
A business review can be used to assess the financial health of a business, risk factors and pain points. It will also bring to light any opportunities that may help achieve short-term and long-term cost savings, streamline processes, and optimise company operations to cut out any unnecessary costs. A business health check will strive to ensure the business operates at the height of both financial and operational efficiency.
For example, if a company asset is non-performing, however, requires regular maintenance, cash investment and support from staff, the asset may be disposed of to raise funds to replenish company reserves and redirect employee efforts elsewhere.
A business health review may also address if the application of modern technology can help automate administrative tasks to make better use of time, and company finances. This can help the business operate in a self-sufficient manner and attract business sellers in search of an innovative company.
A business with regular income is likely to be a low-risk investment as consistent demand for the service or goods can earn a successful future for the business. A business with a variety of rolling contracts is likely to result in a steady stream of income and therefore able to produce an accurate and realistic financial forecast. A balanced pipeline of jobs can present the company as a safe and profitable business sale opportunity.
Check that the business is not at financial risk or likely to become insolvent in the event that a core client cancels an order or terminates a contract. Diversify your client base to attract a varied range of customers and divide the risk. If a client becomes insolvent, the company should be able to continue to trade without fear that it will run out of cash.
The reputation of the business will directly affect how much a buyer will be willing to pay. Customer feedback is a realistic reflection of how a business operates, its values and beliefs, and social media is a powerful tool used to gauge how a business is presented to its client base.
A business with a well-established social media presence can use this as a mouthpiece for consumer feedback, which can also double as a lead generator tool. This not only adds value to relationships with existing and prospective customers, but also shows employees how customers are interacting with the business.
The business must have the potential for growth and the ability to generate more income under new ownership. Create a long-term strategy to illustrate the next milestone the business is on track to achieve. A growth strategy can flesh out the aspirations of the business to potential buyers and attract higher offers in the event of a competitive bidding process.
If there is evident demand for a particular service or product, can a financial injection in this area increase turnover? Is it feasible for the business to enter a new market? If the business uses a website that receives notable traffic, can this be used as a lead generator with sufficient financial backing in place?
As part of business sale preparations, your client must ensure that all company records and reports are up to date to present the business in a true light. A member of the Ernest Wilson team can support you and your client throughout the business sale process and help navigate pre-sale company preparations to maximise the saleable value of the business.
For more information, watch the Ernest Wilson 2020 webinar on how to prepare a business for sale and the selling “process” for 2020 member firms