How could my company be valued 7x more than another valuation?
While attending the Business Growth Program (BGP) at Cranfield University in 2011 I had a life changing experience. So you know – the BGP is the UK’s longest running and most successful programme for the development of owner-managers. The whole course is built around a core process whereby each participant develops their own growth strategy for their business and a plan to implement that strategy. Throughout the course I learned about money and measures, markets, management and me.
Although the course was designed to help me grow my business empire, it actually caused the opposite effect. During the ‘me’ section of the course I was challenged about what I wanted, why I wanted it and how I wanted to go forward into the future.
For over eight years I built my business from nothing to a 500 million GBP turnover operation, yet during that time I failed to think much about ‘me’. I got up day after day, pushing, struggling, celebrating, and then pushing some more. I worked and worked and worked yet failed to consider why I was working and for what ends.
During a dinner meeting with my Cranfield counsellor he asked me, ‘What does Kim really want’? I had a few wines by then and out came the words, ‘I want to get out. I want to be free. I want to leave my company but since I own it I’m stuck forever.’ I also felt a sense of guilt that I wanted to leave a very successful organisation that I created. What was wrong with me?
Thankfully, my counsellor told me that I wasn’t stuck and there were many options available. He also explained that I was a typical entrepreneur – I like to start things but sticking around wasn’t my cup of tea. Suddenly, I saw a light at the end of the tunnel. Perhaps I could exit my company?! Perhaps I didn’t have to feel guilty? Maybe there wasn’t anything wrong with me?
Let me back up and explain my situation – I owned 50% of a Limited company and my business partner owned the other 50%. My partner wasn’t interested in selling so I assumed I had to stick around. I suppose I was sheltered for 8 years – my head was down and I didn’t really understand where I was or how I could change my situation. I didn’t have many friends I could talk to so I just kept quiet and lived each day as it came. I often told my business partner that I wasn’t happy but he kept telling me to stick it out. When I asked how long he wanted me to ‘stick it out,’ an answer never came.
After the discussion with my counsellor and realising I had options, I told my business partner that I officially wanted to leave. We spent a few months discussing various options where I took time off or tried working in other parts of the business. My partner wasn’t happy with my decision and truth be told, it felt as if we were going through a divorce. It was a very difficult time in my life – I felt scared, alone and vulnerable. Owning and running a company with another person is very similar to marriage.
Anyway, things took their course – my business partner found a solicitor and then I asked around for an accountant and/or lawyer. The first recommendation I received was to visit a London accountancy firm to get to grips with some sort of company valuation. A friend of mine successfully sold his company for £11 million through the recommended firm so I thought it was a good place to start.
The meeting with the accountant was heart-wrenching. After an hour of showing me all sorts of figures, calculations, discussing tax and throwing some big words around she declared that I’d be lucky to get £250,000 for my shares and that was before tax. When I saw the figure I almost cried. I was expecting a bit more than that!
The accountant went on to explain that the same situation happened to her in a previous company and that if I wanted to leave I need to take what I could get and make the best of it. She explained I was in a position of weakness and it was me that wanted to leave. All I could think was that I spent 8 years giving my life for £250,000. In my mind, the pain I endured wasn’t worth that amount of money.
Fortunately, I met up with some business friends after my meeting and explained the situation. They all said there was something wrong with the valuation and I needed to seek better advice. If it wasn’t for them, I could have carried on with that accountant and received a fraction of what I ultimately achieved.
A few weeks later, and after a visit to a fantastic lawyer, the new valuation figure for 50% of the company was around £1.8 million. Big difference – eh? Needless to say, the heart-wrenching feeling I had at the accountant’s office was not replicated. Instead I felt a tingle of freedom – a possibility that I might be able to exit and have a pay-out that fell more in line with my expectations.
Fast-forward several months and the deal was completed. I was able to exit my company, get a very nice pay-out and finally take the time to understand who I was, what I wanted and how I wanted to go about getting it!
So, my key point is this: make sure you talk to several people about potential valuation figures and definitely complete a beauty parade when sourcing your business sale team. Professional advisors can help you lose or gain loads of money – take the time to shop around and find the best fit for you.
In our store we have an excellent pack that can help you select the best advisors for your particular requirements. Check ‘The Seller’s Professional Advisors Beauty Parade Pack’ out here.
Kim Brown, Co-Founder of Business Wand, helps business owners navigate their way through the start to finish process of selling a business. Her specialty is to help owners cut costs and increase profits prior to sale. To understand how you can sell your business quickly for the highest sales price, purchase the book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”