Maximising the sale price of your business

For any business owner, they need to think about their eventual exit in order to maximise the return they get from the business.

A business owner should regularly review and assess the business through the eyes of the potential buyer. We set out below some of the things a buyer would be looking for and ways in which the business owner can maximise their exit value:

1. The business cannot be fully reliant on the business owner. If the business owner is the key to its strength, or only strength, a buyer is going to be reluctant to pay too much for something they can’t get value out of as the business owner won’t be easily replaced. The business owner should therefore ensure they have systems, together with a strong team of people, to ensure the business can be on sold without the business losing all or the majority of its value upon the current business owner ceasing their involvement.
2. Identifying risks to buyers. If the business owner can identify these risks well before the business is put on the market for sale, then the owner can take steps to mitigate or remove them. At the very least, the business owner is then in a position to explain these to a buyer. If they are not dealt with prior to a sale price being negotiated, then after the price has been agreed to and the purchaser is undertaking due diligence they are likely, upon coming across any such risks, to seek a reduction in the purchase price.
3. Ensuring that all key contracts with suppliers, customers, key employees or people important to the business moving forward are in writing wherever possible. This will give comfort to a purchaser that the value of the business is also locked in.
4. Ensuring the business’s financial statements are in good shape. If the business owner has some personal expenses incorporated in the business financials, then these should clearly be able to be extrapolated to give a true picture of the profitability of the business.
5. The implementation of good systems, governance and control will give a potential buyer confidence that they will be able to maximise the probability of the business moving forward.
6. Thinking about who the potential buyers may be. If the business owner does this at an early stage, then the business owner can consider how to strategically position the business to optimise the potential sale price.
7. Looking at the business objectively from the purchaser’s perspective. The business owner shouldn’t consider identification of risks, lack of existing systems or governance procedures, or other deficiencies, as being a personal criticism of themselves or the business they have created. A proper analysis of the business and addressing these issues is merely assisting the business owner to maximise the value of the business, by looking at it from a potential purchaser’s perspective.

At Solari & Stock, our Commercial Team can assist business owners in getting their houses in order, preparing appropriate contracts for key suppliers, customers and employees, and any other business documentation in anticipation of a future sale. Also, by putting in place such documentation, in any event, this will help minimise the risks to the business and maximise the long-term profitability of the business for the current owner.