Blog - Top 10 tips to maximise the value of your business
Monday, 06 August 2018
1. Major on your USPs
Place yourself in a buyer’s shoes; what aspects of your business really stand out and make it attractive for them to buy? It could be such things as intellectual property, product or service benefits, locations, brand and reputation, price point, market knowledge and customer service levels. Whatever they are for your business, they are your Unique Selling Points (USPs) and they need to be identified, protected and exploited.
2. Forecast your growth
If you’re confident your business is going to grow over the next few years, you’ll no doubt want this factored into the sale price. However, you’ll need to quantify this growth with robust forecasts supported by detailed written assumptions. A buyer is simply not going to do this work for you, nor are they going to accept sweeping statements such as “profit is expected to increase by 10% year on year”. So write it down and highlight it.
3. Remove unnecessary expenditure
Pretty obvious point, but it’s still regularly overlooked by complacent businesses. Leading into any sale (this is good ongoing business practice anyway) it’s important to question every item of expenditure. Ask yourself what the true impact on profitability would be if you didn’t incur that cost. If it’s an unavoidable cost, how many quotes have you obtained? If your business is going to be valued on a multiple of profits (like most trading businesses are) then every additional £1 of profit created will have a disproportionately greater impact on the sale price.
4. Reduce your waste
Whilst increasing turnover and reducing costs are important, don’t overlook potential improvements to your business processes. Examples of such wastes include producing more than you need, delays in your operational processes, inefficient transportation costs and rectifying defects with products/services. There is a well-known “Seven Wastes” internal audit that can be undertaken in any business to help identify these wastes, apply a score and prioritise finding a solution. We can help with this if needed.
5. Develop your teams
An experienced, empowered and motivated management team gives a buyer confidence that the business will continue to operate successfully once the owners have left. It also gives you a potential exit route through a management buy-out, and of course a strong management team should generate good profits and enable the owners to take a passive role. At MHA Larking Gowen we help train new management teams and introduce tax efficient incentivisation schemes to reward their greater efforts and responsibilities. Everyone wins.
6. Consider an audit
Your company accounts may well already be audited, but if not, you may wish to consider having a voluntary audit undertaken prior to a sale. This should give added reassurance to a buyer that the figures in the accounts can be relied upon and may mean they undertake less due diligence during the sale process.
7. Spread the good news
Prospective buyers will always review your accounts at an early stage, and first impressions count. So why not take the opportunity to share your good news by making greater use of the Directors’ Report? For many companies, this tends to be a bland and minimal part of the accounts. However, you’re free to write whatever you want, so think about highlighting recent successes, plans for the future and ways you have mitigated risk in the business.
8. Think R&D
Research & Development (R&D) tax relief is overlooked by many companies. The perception by some business owners is that they need a laboratory and people in white coats to qualify, but the reality is much different. If your company is investing in innovation, such as new products, processes or services, or enhancing existing ones, it could be eligible for a cash payment or a corporation tax reduction. We have experts at MHA Larking Gowen to help clients identify R&D expenditure, but there is a time limit to submitting claims, so don’t delay.
9. Release overly prudent accruals and provisions
Accountants are prudent by nature, so it’s understandable why provisions are made for likely future costs (such as bad debts and property dilapidations). These provisions can result in a lower tax bill, but when selling a business it’s not the time to be overly prudent. Review your provisions, and if you can make a legitimate reduction, it will have a one-off positive impact on both your profit and loss account and your balance sheet.
10. Reduce your working capital
This is absolutely key to maximising the value of your business, but I’ve left it to the end as it’s probably the most technical of the 10 tips. Working capital is effectively your stock and debtors less your creditors. Quite understandably, a buyer will be wary of taking on a business with a working capital deficit, as it means they’ll need to introduce funds into the business immediately after they’ve bought it to keep it afloat. However, if in the months leading into a sale you can keep working capital to a minimum then it will help demonstrate to a buyer that they need not worry and much or all of the cash in the company at the time of sale can be treated as surplus and added to the sale price. If in doubt, we can help.
If you’d like to explore the potential sale of your business, please get in touch. Call 0330 024 0888 or email firstname.lastname@example.org
Next month: Top 10 common mistakes when selling a business