Posted on June 20, 2013December 25, 2018 by Joanna Miller — Leave a comment

The business sale process in 6 steps

6 Steps in the business sale process

There can be many reasons behind your decision for a business sale in the UK. Selling your business might seem simple in theory, but is one of the trickiest feats to accomplish when it comes to formalities. Here’s the step-by-step process for a business sale, along with suggestions about how to make it all go smoothly and profitably.

Step 1: Your Human Resource

Human resource is the backbone of your business. It could be in the buyer’s interest to retain at least some of your human resource for the long term. A business sale gives you the opportunity to get rid of the non performers and make your business more profitable to the buyer. But you may feel that you have an obligation towards your good employees and should afford them every opportunity to continue their careers in or outside your business. Don’t forget the TUPE Regulations as it may also put you under some legal obligations when completing your business sale.

Step 2: Information Memorandum

Your business broker will prepare an “Information Memorandum” (MOI) on your behalf, outlining all relevant details about your business and your intent to sell your business. The Memorandum is like the blueprint of your business. It informs the potential buyers about all aspects of your business that might be of interest to them. We have a MOI sample table of contents on our Free Document Samples section of our website here.

Include a snapshot of your company’s finances along with projections for the coming years. The business’ financial health allows them to determine the fair price at which they should buy your business. Buyers will also like to know your key staff members and business processes —how you procure materials, how you process them, and how you sell them. They would like to know the number of people you employ, the number and locations of all the outlets or offices you have and the activities that they are used for.

A good Information Memorandum should project your business in a very good, desirable light and make it attractive for the buyer. And if a potential buyer is the competition, you may choose to provide a different MOI or provide it to them at a later date when you are sure that they are serious contenders for buying your business.

Step 3: Offers and Due Diligence

Once an indicative offer has been received and you accept, your prospective buyer will scrutinise your documents (via a data room) for a few weeks or months before making you an offer. Remember that an offer is just an offer unless it is supported by the other party’s ability to pay. You have the right to find out and confirm that the buyer can afford to pay, this is normally done by your business broker.
Don’t be desperate for a sale, and even if you are desperate, never ever show it to the buyer. Don’t take any offer seriously until you are satisfied that they have strong intent, have the means to pay and its a good offer.
The offer you receive should be comprehensive and detail what the consideration is and when payment will be made. The buyer may also include an earn out element that ties you and/or other key staff members for a defined period after the business has been sold.

Step 4: Negotiations

Before both parties finalise all the details, you must negotiate the terms and price of the sale with your buyer. This will take place over a number of days and weeks. Negotiation is an art form and you and your business sale team must be fully prepared at all times. This is where your business broker starts to earn their money. Make sure you agree on your negotiation strategy ahead of time. Know what you want, what you are willing to give up and what’s non-negotiable.

Step 5: The Sale Purchase Agreement

Your advisors and legal experts will sit together with your buyer’s acquisition team and draft a detailed Sale Purchase Agreement (SPA) which will include all the terms and conditions that you finalised during your negotiations with the buyer. Make sure you provide accurate information, because this is a legal document, and anything that is proven wrong after the sale has take n place will be held against you.

Step 6: Completion Day and beyond

On Completion Day, expect the ‘day’ to be quite long and you may very well still be negotiating as the day progresses. Make sure that you and your business sale team are focused on getting across the finish line which is marked by having signed all the paperwork and the solicitors agreeing on both sides that the business sale is indeed ‘completed’! Allow the moment to wash over you, it really is an amazing achievement. Then its time to get back to business and deal with how the news is going to be communicated and start earning that earn out if you’ve got one!

Joanna Miller helps business owners navigate their way through the start to finish process of selling a business. Her specialty is helping owners understand how to prepare and make the most of their business sale process to maximise their company’s value. To understand how you can sell your business quickly for the highest sales price, purchase her book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

Posted on June 11, 2013December 25, 2018 by Joanna Miller — Leave a comment

Interview: The Management Buyout (MBO) Alternative

Looking at a Management Buyout Business Sale in Hindsight

There can be no denying the wisdom of hindsight. Looking at things that have already happened gives us important insights and learning. The paradox with the hindsight is that you cannot go back in time and fix things that went wrong. However, we can all learn from other people’s experiences when we are going to do something important in our life. Getting a university degree, setting up and running a business, and selling a business are some of the important things in life where we can gain lots from looking at other peoples’ experience.

Selling a business was a conscious choice that Sandra and her husband made. They were running a creative services agency with many blue chip companies as clients, and they ran it successfully for over thirty years. Then, one fine morning, they realised that the passion had gone out of their work. Their decision to sell the business as a management buyout and walk away to something new had “different motivators for each director”, says Sandra when asked what prompted them to exit the business. “My husband was tired of running the business for over thirty years and wanted to have some easy time. I wanted to move to something new. I had fallen out of love with the business.”

For many people, the desire to have a leisurely life or to do something new can be powerful motivators for planning a business exit. Many entrepreneurs start businesses that they are passionate about. They take pleasure and get their kicks out of what they do, and that’s why they are often successful. After you have done something for a long time, it often loses its charm. It’s the same with business. It is natural to feel that you have had enough, or that you are not interested in the business as much as you used to be. At such moments, it is best to think about a business exit before the diminishing interest takes a toll on the business performance. You know that you have arrived, and you want to celebrate your success.

“What was your original business exit plan?”, I asked Sandra.

“As major shareholders, my husband and I wanted to sell the business to the remaining two directors first. We thought it would be much simpler and easier, as the directors already knew everything about the business performance and strengths.”

Sandra and her husband were taking the obvious route to business exit and chose to take the management buyout option. However, as she would later realise, selling a business to management was much more complicated than she and her husband had initially thought. Negotiating with their directors over a long period of time turns out that it was not something they were fully prepared for.

The process was emotionally “very hard”, says Sandra. “…when business partners that you had excellent working relationship with, and previously had always pulled towards to same ends suddenly had to negotiate with each other. The uncertainty is horrible with the changing scenarios – one day the sale is on – one day the sale is off – emotional roller coaster.”

You can never afford to underestimate the complexity and the emotional stress of going through the process of a business sale. When selling the business internally, be prepared to detach emotionally from the people you’ve been working with and concentrate on a fair deal. The sale process is full of uncertainties and surprises, so be prepared. At the end of the day, you don’t want to throw away the business. You want a price that should reward you for your hard work, and leave you enough money to start whatever you are planning to start next.

“We backed out of the sale”, said Sandra when asked about the final outcome. “The sale value was not enough on its own to make us financially independent, and our next business ideas needed time to start monetising, and so in the end we realised that the sale value was simply not high enough for us. We are now looking to put long term value into the business – which we should have done years ago!”

There you have it. There’s no harm in walking away from a business sale when you feel that the price and the terms do not suit your interest and doesn’t reflect the true value of the business, why give it away to someone else if you can do more with it yourself? Though, be prepared for the repercussions that it would have, as you might not be on the same terms with your directors and other parties that you’ve been trying to sell to.

I wrapped up the interview by asking Sandra, “In hindsight, what are the things would you have done differently, if anything?”

“There’s 1 thing I would do differently. And that is to build long term value into the business. Realised that the main value of the business was US, which is useless if you want to sell. If I had my time again I would (1) develop products using the skills developed during my career and (2) Develop IP around the methodology that our business has built up, eg. by writing a book on this methodology – and create thought leadership position.”

Those reflections are interesting as more and more businesses these days look for ways to innovate and stand out for the crowd. Creating products provides another string to the business bow and can help in times of uncertainty and help smooth out those seasonal variations. On a last note, I did mention to Sandra that it wasn’t too late to take heed of her own findings and enjoy the journey of their management buyout alternative.

Posted on June 4, 2013December 25, 2018 by Joanna Miller — Leave a comment

Sell your business equals entrepreneurship?

Sell your business = entrepreneurship, really?

The other day a business owner told me that he would only consider himself a successful entrepreneur only after he has successfully sold his business. Needless to say my response was one of amazement and I was a little incredulous because I disagree. You don’t have to sell your business to call yourself an entrepreneur. It’s only a label and given the challenges of starting a new business, surviving to break even and growing it to turn a profit, I would say that’s entrepreneurship in its own right and everyone who’s done that deserves to wear the badge of entrepreneur with pride. In fact, in my book, anyone who’s started a new business and had to wrap it up is also an entrepreneur, that includes Kim and myself.

Selling your business could be seen to many as icing on the cake that is ‘business’. Just another goal/achievement to be ticked off a long ‘to do’ list (‘Sold business? Check.). But to link entrepreneurship to selling a business seems to only be acknowledging part of the journey instead of the whole and certainly misses out the startup phase.

Not everyone wants to sell their business, especially if they’ve used our ‘Calculate Your Walkaway Price Pack‘ and discovered that they are better off keeping the business to suit their lifestyle (whether that’s desired or current!) and indeed some have deliberate plans not to. And that’s perfectly alright even though this website is targeted at those that do want to sell their business! I wouldn’t exclude them from being entrepreneurs because of that decision that they’ve made.

But as we know everyone has their own definition of entrepreneurship. Some define is as having more than one business startup (which may lead to a successful business sale), others say its depends on the size of the company (be it number of employees, revenue, profits, number of offices, international presence?). Would you give yourself the ‘entrepreneurship’ label only after you have successfully sold your business?

Posted on May 30, 2013December 25, 2018 by Joanna Miller — Leave a comment

Value your business using the discounted cash flow technique

Business valuation using DCF

This article will focus on how to use Discounted Cash Flow (DCF) to value your business. If you’re looking for details on valuing your business using a valuation multiple, I’ve covered that here and both business valuation techniques are also part of our ‘Calculate Your Walkaway Price Pack’.

Discounted Cash Flow is where you look at how much cash the business generates each year, project it into the future and then calculate the worth of that cash flow stream “discounted” using an interest rate. This kind of calculation can be easily done by using a software package like Microsoft Excel and its Net Present Value (NPV) function if you’re familiar with using software.

Otherwise, without using a software package, one quick-and-dirty technique is to divide the current yearly earnings by the Bank of England base rate or a banks’ instant access savings account interest rate. For example, if your business makes a profit of £10,000/year and the savings account rate is returning 3% interest, the business is equivalent to £333,333.

Here’s how we calculated that: £10,000 / 3% = £333,333

£333,333 invested in a 3% savings account would return £10,000 income.

Looking at the figures, if you had £333,333, you could earn your £10,000/year by investing in the bank’s savings account with a lot less effort than running a business but be aware that this quick-and-dirty Discounted Cash Flow technique puts an upper limit on your business valuation. After all, why would you spend more than £333,333 on a business when you could earn more by spending the same money in the savings account? A possible answer could be that you want to diversify your investment portfolio. The other is that perhaps one around risk and also savings interest rates could drop.

Of course, using this DFC quick-and-dirty technique assumes that your business will have the same earnings year after year, and assumes that only monetary return matters and we all know that in reality earnings will go up and down and there are more intangible benefits other than hard cash to take into consideration.

So there you have it, DCF in a nutshell. You can now compare the Discounted Cash Flow technique against using a valuation multiple to value your business.

Please remember that at the end of the day, just like art lovers, it’s all in the eyes of the beholder (the buyer) and what they are willing to pay for it.

Posted on May 28, 2013December 25, 2018 by Joanna Miller — Leave a comment

Value your business using a valuation multiple

Value Your Business – the Multiple

There are a number of ways in which to value your business. Two popular financial calculations that are used to estimate how much your business is worth are:

A valuation multiple
Discounted Cash Flow (DCF)

This article will focus on how to use a ‘valuation multiple’ and we’ll be covering DCF in a separate article later this week.

In our ‘Calculate Your Walkaway Price Pack‘ we included a worksheet that covers three popular business valuations for you to complete for your business.

First of all, let’s define what a valuation multiple is. The valuation multiple is used to multiply a business economic benefit to arrive at an estimate of business value. Revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) are just two examples of what the business economic benefit could be. The actual multiplier value depends on the type of business, the forecast for future sales and many other factors.

It really is a simple calculation and it’s based on your last full financial year set of results:

Business Value = business economic benefit x valuation multiple

Your market will most likely have an average ‘valuation multiple’ based on past acquisitions in that sector using a particular business economic benefit.

For example, it could be 2x sales or 3x EBITDA.

Perhaps a business recently sold in your industry – do you remember what their figure was? If you don’t know, you could always ask a business broker or if the acquirer was publicly listed, the information will be on their website as they have to declare the terms of the deal.

Use the industry multiplier as your starting point and then you can adjust the multiplier when applying it to your business. Bear in mind that you may have both positive and negative influences when you do that.

Positive influences on raising the multiple figure would include:

Innovate products and solutions
Strong brand and dominant market share
Low number of competitors
Strong profit
Strong customer base
Reoccurring contract revenue

Negative influences that will reduce the multiple figure include:

Strong competitors with better products and services
Declining market share
Few Customers that make up 20%+ of sales
Legal action

Hopefully your business will have positive influences and no negatives which will help that multiple. Once you’ve valued your business then its time to focus at how you can directly increase and sustain your sales and/or profits (the business economic benefit) so your business valuation increases.

So to recap, what you need to do is:

Decide on the business economic benefit to use
Use your industry’s valuation multiple (or use 2x sales or 3x EBITDA)
Adjust the multiple up/down when applying to your business
Perform the calculation!
Focus on increasing your business economic benefit

Which leads to maximising the valuation for your business.

Simples! You have now successfully valued your business. DCF is up next…

Posted on May 20, 2013December 25, 2018 by Joanna Miller — Leave a comment

How to find the best broker to sell your business

The best broker to sell your business

A lot of work goes into making a business successful. But nothing lasts forever, even if your business is something you love and watched grow from a tiny baby start up into a fully grown adult money making machine. There comes a time when you want to sell that business.

It may be that you want to work in another sector or want to retire. Whatever the reason you need to ensure the process runs as smoothly as possible and the most effective way of making sure this happens is by finding the right broker company.

Consider your Exit Strategy

A lot of people who run seminars or give talks on running a business will talk about having an “exit strategy.” This is when people decide when they want to leave a company and how they intend to do it. However people are only human and the odds are when you work every day on your business you may not have thought of the practical steps needed when you need to sell up with a vague “some time in the future” in your head.

The temptation then is that when you finally do decide enough is enough you may decide to go it alone. After all you’ve set it up and made money for yourself why can’t you sell it yourself?

The reason this approach is not as effective is quite simply the law of averages! If you try and sell a company on your own then it is likely you will only be able to deal with one potential buyer at a time. The danger of this is that if a deal falls through it can mean going back to square one all over again each time, adding further stress and work that you don’t need when someone else can handle it for you!

A broker can deal with a number of clients at once because…well it’s their job. Even if you are robot level efficient there’s only so many meetings you can go to. Depending on who you go with they can also assist on the marketing and finance side as well, all things that could potentially screw up a sale.

Hold A Talent Contest or Beauty Parade

All of these aspects need to be considered when comparing the various types of company broker available to you. In some respects it is like a talent contest and you are the judge- therefore it is up to you to ask the right questions!

The most important question of all is- can you give us references? They ought to be willing to give proof of any claim and be able to supply you with convincing evidence that they can do what they claim to do. Trust your instincts- if the reference seems dodgy, look elsewhere!

Another aspect is the valuation- if they offer a figure that is too high or low then it is best to avoid them. In both cases there is a danger that they have an ulterior motive so it is best to do a little detective work to see the facts behind the figures.

Also get them competing! Don’t be afraid to get ruthless – get a couple of quotes and then call them back saying what the other one offered.

(Note: In the Sell Your Business Store, we offer a beauty parade pack to help you ask the right questions to obtain the best broker, solicitor and financial people!)

The Small Print

ALWAYS READ THE SMALL PRINT!

The odds are they will have various fees that they charge for their work. Do not take what they say at face value.

Part of the problem is finding people you know are reliable, rather than hoping that the people you are contacting are real. Anyone can create an official looking website and anyone can dress up their service with fancy sounding jargon.

Business networking groups are ideal places to go for this- someone usually knows someone else and if they genuinely like the service they offer then they will tell you!

Stay in touch

Even the surest of deals can go down due to unnecessary delays. One of the most frustrating things is to find your perfect deal went wrong because someone didn’t check their email or didn’t respond quickly enough to a phone call.

If the broker is in your local area, pop into their office unannounced before you do the deal. See how they handle the day to day running of a business. Look at the way they arrange their desks, the way they talk with each other. If your business sense starts tingling the odds are something is amiss- in some respects it’s like courting and it is up to you to read the signals to see whether your potential broker is the perfect date or the perfect dud!

Checklist for choosing a broker

In short there are a few things to check over before you choose a broker-

Know your exit strategy
Set a time frame
Do your research
Is their approach appropriate for your business?
Can they offer assistance with marketing and financing?
Ask for testimonials
Ask about fees upfront
Is their valuation realistic?
Compare at least three different company brokers.
Ask around at local business networking groups.
Make sure they stay in touch with you and keep in contact during the selling process.

Another thing to remember is that there are no guarantees and no broker can promise you definite sales. But like any investment in your business doing your homework and comparing all your options will give you the best possible chance. While it may be hard waving goodbye to your grown up company you can do so knowing it’ll find a good home!

Posted on May 17, 2013December 25, 2018 by Joanna Miller — Leave a comment

And The Best Time To Sell A Business Is…

The Sale Process Stages & Best Time To Sell A Business

The Sale Process Stages

Most businesses are for sale if the price is right. When someone asks, ‘Is your business for sale?’ I recommend you say yes. It doesn’t cost you anything, and it keeps the opportunity open for further exploration.

(Note: This is in excerpt from Chapter 1 of “How To Sell A Business: The UK’s #1 guide to maximising your company value and achieving a quick business sale.” Get the whole chapter for free by filing out the form to your right)

Exploring opportunities is one thing; entering into the business sale process is another. You definitely don’t want to go into it lightly. The process is costly and mentally and physically draining. It’s not an activity to enter half-heartedly by either the seller or the buyer. A high level of commitment is necessary from all parties.

The actual sale process may be longer than you think, and it involves a number of stages in order to maximise your valuation. The stages are as follows:

Making the decision to sell
Preparing your business for sale
Getting the right business sale team in place
Going to market to find a buyer
Carrying out successful due diligence
Completion Day and the after-party
Communicating the successful sale to the market

When is the best time to sell a business

In an ideal world, the best time to sell a business is when your business is on the up-and-up, still growing with a strong order book, running efficiently, managed effectively, and the going is good. The trick is to recognise this point as it approaches, and make the most of the window of opportunity when it arrives. My business partner and I always looked out for this window, and our indicators were our scarcity in the market, the number of clients with which we had contracts, the volume we were processing, and forecasting over the next few years. Even though we recognised the window of opportunity when it came along, we were a little late. This was partly because the business was going really well and everyone was enjoying themselves, and partly because our business sale process took longer than we expected.

The indicators for your business are likely to be different, taking a number of different factors into account, such as scarcity of your product and services in the market, the market size, future opportunity, profit margins (are they growing or shrinking?), and where your business is in the market cycle. It could even be that you have gone to see some venture capitalist (VC) companies who told you that you need a larger order book.

TIP: To make sure you don’t miss the boat, define the indicators to look out for, which show when the best time to sell is approaching. Make sure this is checked regularly, so have it as an agenda item at your board meetings.

If you are in a market cycle that doesn’t have a ‘best time to sell’ period coming up for the foreseeable future, it could still be the perfect time to sell. Just remember to choose your ‘ready to sale’ point very carefully by taking the calendar into consideration (more details in Part Five of the book — When should we go out to market?).

Posted on May 8, 2013December 25, 2018 by Joanna Miller — Leave a comment

How To Sell Your Business In A Downturn

“Sell your business in a downturn? Are you crazy?”

This may the reaction that you get from friends and family if you are planning to sell your business in the current economic climate.

It’s not as bad as it appears

Downturn, recession, depression, slump – whatever you call it, there is no doubt that the world’s major economies have been suffering a tough time over the past few years, and there are those that would suggest that you would be better to wait until the storm blows over. However, figures from the UK’s Office for National Statistics show that last year, the value of UK company acquisitions was over £20 Billion – so even if the figures are lower than previous years, there is clearly still plenty of opportunity to sell your business in a downturn.

So if you find yourself in the position of wanting or needing to sell your business now, there’s no need to listen to those who think you’re crazy. You may even find that the process is easier than it would be during times of economic growth, because there’s less competition in the marketplace. It is still perfectly possible to sell your business in a downturn, while getting a fair value for all the hard work you’ve put in to make it grow over the years.

Four Steps on how to sell your business in a downturn

To maximise the return on your investment of all that money and sweat, it’s worth bearing in mind the following steps. Several of them apply to selling your business at any time, but in a downturn they become especially important as corporate finance is limited and asset values are generally depressed:

Present your best face – Ensure that your business is as enticing a prospect as possible for a potential buyer. Of course, you always try to run a tight ship (right?) – but now is the time to take the opportunity to make it even tighter. Take a look over the company’s accounts and make sure everything’s up to date. Tidy up those ledgers, tax returns and bank account records so that any buyer can see what they are buying, and that there are no hidden surprises. Renew your leases, insurances and software licenses (and while you’re at it, why not see whether you can use the fact of the downturn to negotiate a better deal?) The better face you can present to the world, the more valuable your business will appear.
Be flexible – In a downturn, there is no getting around the fact that there are fewer buyers and, unfortunately, there is less cash available. After all, that’s pretty much the definition of a recession. This is the time to be flexible about how the deal is done. You may find that there is someone who is willing to buy your business, but would rather make the purchase by means of a loan, or by offering shares in their business, or giving you assets such as buildings or land in return for your business. This may not be your favoured option, especially if your reason for selling your business in a downturn is to release much-needed cash. However, don’t dismiss the possibility without considering it carefully, because you may find that the assets you’re offered now end up appreciating in value as the economy recovers and business confidence returns to the market.
Have a convincing business plan – Anybody buying a business in a downturn will recognise that they are taking on an element of risk, so you can calm their fears by taking a long, hard look at your own company, and developing a fresh business plan that shows how it can maximise profitability from this point forward. You probably developed a business plan when you first set up your business, so follow the same steps now to analyse your market, your competition, the prospects for future growth and ultimately, the value of your business to a buyer. Don’t forget that they will want to see a good return on their investment, so spend a little time and money on advice from your own lawyers, accountants and bank managers to make sure that your calculations represent a realistic prospect of profit for the buyer.
Finally, consider whether your business actually has some benefits in a downturn. Some businesses actually do better when times are tough, such as those dealing with asset repossessions, or discount retail. If you happen to be operating in these markets (or could expand into them), then now is your time to shine! Make sure that buyers recognise the benefits of buying your business in this downturn – you may actually be a better prospect now than in the boom years.

Whatever your motivation, just remember that if you are selling a genuinely valuable business, an economic downturn need not be a barrier. Be prepared to be patient, as things may be slower than you would like, but if you follow the steps above, you can hang on to get the best deal for your business.

Posted on May 6, 2013December 25, 2018 by Joanna Miller — Leave a comment

5 Ways To Increase The Value Of Your Company

Increase The Value Of Your Company

Listed below are 5 ways to increase the value of your company.

Number 1: Make your business more efficient

You don’t need an expert to tell you that if you cut costs and increase productivity you’ll get more sales and you can increase your company value. As with so many things this statement is all well and good in theory but a bit harder in practise. A recent advert used the slogan “Don’t work harder, work smarter” While working hard is good sometimes a bit of extra effort and investment in the short term means fewer late nights and stress in the long term!

Ways you can increase the value of your company by making your business more efficient –

Customer relationship management software – In effect this helps you to gauge who specifically amongst your customers is the one handing over the most of their hard earned and therefore is most worthy of your selling efforts.
Chase up payments – One problem may be that you are not claiming your money fast enough. A way to get the sloth-like non payers going is by introducing late fee charges for unpaid bills and invoices!
Spend less time emailing – Focus more on the tasks you have to achieve. Yes the numbers may look scary but you will often be more productive if you focus on selling then dealing with enquiries. If you are worried about it piling up you may want to consider hiring a virtual PA.
SEO – Make sure that people can find you. Studies show people tend to give up looking after the third page, so you want to make sure you are as close to the top as possible to get that extra traffic (and those potential extra sales!)

For more information this topic, read our article on ‘How to Maximise Business Value‘ here.

Number 2: Shop around suppliers

Cutting costs will help you to increase the value of your company. Shopping around is crucial for everything from buying pens to getting a cheaper deal on travel. While people in the UK are getting better at this there is still a certain degree of reticence about asking for a deal.

Also don’t be afraid to be a bit sneaky and pit suppliers against each other. Tell them what their competitor told you and see if they can match it. Even if they can’t lower prices they may be able to throw in some extras. For example, a travel company may not reduce the cost of a flight but may bump you to first class!

Number 3: 10% staff churn

The rate at which you turnover staff also has an effect on how your company is valued. In an ideal world you would replace the ones who are not pulling their weight with angelic superstars who do everything you tell them and will appear instantly to babysit your children at a second’s notice.

Life unfortunately is not that simple. For a start don’t get fixated purely on the 10% – if one tenth of your employees leaving are the ones that get you the most sales then things are not going well!

You need to handle this carefully by ensuring that anybody coming in is suitably trained and equally that you handle people leaving as delicately as possible. While you want to get those healthy profit figures it can look bad if you are seen as someone who is a hard and unfair taskmaster. Give your leaving staff a positive exit interview can ironically be a good thing, as you can give them feedback and allow them to find a job more suited to their needs (sounds weird but its worth it!)

In short, while you want to get the figures working make sure you keep the human beings behind those figures on side too!

Number 4: Intellectual Property Rights (IPR)

Intellectual property rights (IPR) cover copyrights, trademarks, patents and so forth. These are factors that could help boost your company valuation. The reason that these increase company value is because it is something that you can in effect sell on again a second time.

The best way to illustrate it is with a certain famous branded coffee house. Said famous branded coffee house sells coffee, a drink that is enjoyed throughout the world and has helped Kim (my business partner) get through the day. However, while said famous branded coffee house has made its money by selling coffee, they have also further spread out by franchising across the world, in effect selling themselves as well as the item.

So when you are looking for ways to increase company value don’t be afraid to get someone in to have a look around and see what potential IPR goldmines you could have in your business.

Number 5: Different financial calculations

Finally we go back to how people calculate what a business is worth. This is where it gets tricky. You do not want to be like one of those sweaty Dragon’s Den entrepreneurs trying to bluff an unrealistic set of figures!

There are numerous factors that can affect a value:

Type of cash flow – Ideally with as few costs as possible for higher profit margins.
Reduced risk – What can you do to reduce risk in your business? This will help to increase its value.
Timing – Is there a gap in the market for you? For example whoever thought of designer handbags or shoes with comic book designs on them must be raking in it at the moment!

(More on Business Valuation here).

In conclusion…

What you have are five ways to increase the value of your company. However, they are also worth looking at in terms of making your business more efficient and allowing it to grow more in the long term, something that should not be forgotten!

Posted on May 1, 2013December 25, 2018 by Joanna Miller — Leave a comment

Sell Your Business – Data Room Index

What should a Data Room Index look like?

When considering selling your business, you may hear mention of a Data Room. Since this is something specific to the due diligence process of a business sale or a project bid, your first question may well be “what is a data room”? And following after, you’ll then wonder what a data room index is…

What is a Data Room?

Data is the key to confidence on the part of a potential buyer, being an important factor in the agreed price – and indeed, whether or not a sale goes ahead at all. A data room is often used to help with this aspect of the process.

As a business vendor, you will want to make sure that your potential buyers have access to as much data about your business as they need, in order to make their decision, and to value your business fairly. At the same time, you may well have understandable concerns about the confidentiality of the data. After all, you certainly wouldn’t want commercially sensitive data to be sent around insecurely, with the risk of its being passed on to unauthorised parties.

This is where a data room comes in. The practice of using a data room dates back many years, and has traditionally been a specific room where all of the relevant data is kept for inspection by the bidders. The room is carefully monitored, with the purpose of ensuring that the data is only inspected there, and that it doesn’t leave the room insecurely.

As time has moved on and technology has advanced, the concept of a data room has become increasingly computer-based. If a physical data room is used, it’s likely to contain secure computers owned and controlled by the vendor (or their data room service provider). These computers can be used to view relevant data on-screen, but won’t be linked to the internet and won’t permit copies of files to be made or e-mailed.

In the past few years, though, virtual data rooms have become more popular, as they do away with a lot of the costs and logistical requirements of physical data rooms. A virtual data room is essentially a secure website, carefully controlled with authorised log-ins and data encryption, that allows access to all of the files that would traditionally have been available in the physical data room.

There are several benefits of using a virtual data room, including that authorised users can access it from anywhere with an internet connection, so there’s no longer any need for a dedicated room or physical security. It eliminates the need for bidders and advisors to travel to a particular location, so it reduces costs and allows inspection to be done at a time convenient to the due diligence team. This is especially useful when considering international acquisitions.

Unless your business already operates in the area of secure technology, you will almost certainly want to have a virtual data room set up for you by a specialist provider. They will ensure that only authorised users have access to the data, and that digital rights management restrictions are applied to documents so that they cannot be copied, forwarded or printed without specific permission.

When selecting a provider, ask for assurances that they have dealt with clients in your sector before, and check that they fulfil relevant audit and compliance requirements such as the International Safe Harbor Privacy regulations agreed between the United States and the European Union. You will certainly want them to offer security features such as digital watermarking, 256-bit encryption, two-factor authentication login, and customisable security clearance levels for users.

And what about this Data Room Index (or file structure)?

Your virtual data room provider should be able to advise you on a suitable data room index or file structure for the users to access, but when setting up the files, it’s helpful to consider the whole thing from the bidders’ point of view. You’ll want to ensure that everything they are likely to need is provided in the data room, so if in doubt, ask your own lawyer to get hold of (or create) the kind of checklist that a bidder is likely to use when undertaking due diligence. (You can also purchase our Data Room Pack at our store or visit our freebie’s to see our ‘Data Room Structure Sample’). The exact information to be provided will vary a little from sector to sector, but as an example, you’ll want to include the following in your data room index:

Legal – Certificates of incorporation, memorandum & articles of association, share registers, shareholder transaction listings, minutes of board and shareholder meetings, records of any lawsuits or legal proceedings, etc.

Financial – Statutory accounts, management accounts, asset registers, leases, land and building title deeds, finance policies, authorisation levels, etc.

Regulatory – Licences, certifications, registrations, official inspection records, etc.

Human Resources – Organisation charts, employment policies, salary structures, payroll records, employment contracts, staff turnover reports, etc.

Make sure that the files and folders are set out in a logical, intuitive way, and be sure to include contact details so that bidders can get in touch with your key people to confirm key information.

You will find that you can make life easier for yourself if you prepare for this process in advance. To a large extent, these documents are not unique to the sale process, but constitute the data that any business needs to be well-run, so you can prepare yourself for the data room by keeping good records of all of the above areas of operation. Then, when it comes to the data room process, you and your advisors can work with data room provider to ensure that your bidders have all the data they need – and maximise their chances of making bids that reflect the value of your business.

If you’re considering selling your business, you need all the help you can get, so check out the Sell Your Business Store to get an idea on how we can help you out.