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The 10 Largest Business Sale Deal Breakers

Business Sale Deal Breakers

Business Sale Deal Breakers

If you are on the verge of a business sale deal, be careful. There are many slips between the cup and your lips. You should make sure that you toast to a successful deal, and steer clear of the pits and traps that can ruin your hard work and make your business sale deal crash. Most of these business sale deal breakers appear benign and common sense, but you should remember that sometimes common sense can be uncommon. Being aware of these deal breakers will prepare you to better  identify and avoid such threatening situations that could blow a business sale deal. So, what are these business sale deal breakers? Let’s take a look at 10 of them.

1. Wrong Data
If the data you furnished to your prospect buyer is bad due to any reason, the impact might hit you when you least expect it. Make sure that you check out all figures and think about the information that you’ve supplied. There might be a temptation to blow up sales figures or show less expenses, but bad data, whether intentional or not, can stall your business sale by making your whole business suspicious in the eyes of the buyer. To avoid this pitfall, be open and straightforward right from the beginning.

2. Claim against your business
If your business or any of its assets have a claim against them, it may sink your prospect of making a sale if you haven’t revealed it in your documents. Even if you have mentioned it in the data, a claim reflects poorly on your business. Try to get rid of the claim before going for a business sale, or have a good justification accompany it when you reveal it in your docs.

3. Cover Up
If you have been sweeping problems under the carpet, it’s time to clean up your act. Get your records straight and get rid of any existing and impending issues that might threaten the business sale. Some of the issues can be outstanding debts, employee turnover, or sales slowing down. Covering them up would do little good, while being honest about them will make you think of ways to resolve such issues.

4. Deal Fixation
This happens when a business owner is too focused on the business sale, which may take months to go through. They ignore normal business activities and revenues dip. When the buyer asks for current data, the deal may go into a nosedive. Always focus on strengthening your business even while you are under the sale process. Making jumps in sales or news headlines while negotiations are underway gives you the advantage. Don’t get fixated on the deal to the extent that you let your business suffer.

5. Lack of Preparedness
Being unable to answer a key question during one of the meetings reflects poorly on you as a business owner. If you don’t know the strengths and weakness of your business accurately, it might also affect your negotiations and selling price. Not being prepared with the information and documents required for the due diligence, and taking too long in preparing them is the best recipe for driving away your buyer.

6. Excitement and Depression
A business sale is a tedious process and has its emotional impacts. You may be excited one day, and depressed the next. Sometimes it might appear that you are about to win the sale on your terms. At others, it might seem like an impossible task. As we all feel stress and emotions, there’s a chance you might say or do something that jeopardises the sale prospects. Don’t let your mood swings take the better of you. Always make decisions with a cool mind.

7. Competition
Although rare, competition can and does wreck business sales. This can happen when you have several other businesses like yours offering to sell. If you anticipate this kind of a situation, you should make sure that you offer the buyer some unique propositions or benefits in order to keep the buyer from getting interested in competing businesses.

8. Laws and Regulations
For overseas business sales, certain ownership or transfer laws may be applicable. There may be laws in your particular industry that spell out the requirements for a business sale. If you and your buyer are not aware of such laws and don’t fulfil the requirements, this may come as a roadblock to your business sale.

9. Scams and Scammers
Some companies may offer you a very lucrative deal for selling your business. Such companies, which may be posing as buyers or solicitors, would ask you for a deposit or upfront payment on any context. Make sure that you check all details about the person or firm that you are dealing with for your business sale. Don’t fall for a scam where you end up losing money or wasting time, or both.

10. Delays
Delays, regardless of their causes, will always have a negative effect on your business-sale proceedings. Don’t let delays happen. You can do this if you have planned your sale well.
Working with an experienced and competent business sale solicitor can save you from many of the pitfalls mentioned above.

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”

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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”

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Top 5 tips when starting a new business all over again

Top 5 tips when starting a new business all over again

Starting Over AgainStarting a new business all over again? What about your existing business? There can be many reasons for selling a business. It may be that you have realised that you are in the wrong line of business, and would like to switch industries. Or, you might have realised that your business is not performing as expected, and you would rather sell your business while it’s still making some profits. After all, over 50% of business start ups go under in the first five years. And, if you are lucky, you have a business that’s roaringly successful, and you would like to cash in the good will and start up a new business.

Start-up business owners usually have little experience of managing their own business. After they have done it for some time, the level of their awareness about the market and the industry is improved. Two years down the line, their vision improves significantly and they can spot opportunities better. For instance, let’s say you have a website that’s also making money. However, by virtue of your experience, you know that another niche is driving more traffic and could deliver more profits. You can always dispose of your existing business without making a loss, and hopefully for a big profit, and start a new business that appears more lucrative to you.

Here are five tips from highly successful entrepreneurs to guide you through the business-switching process.

1. Do Not Jump the Boat

Switching between businesses is like switching between boats. If you jump off one onto other, there are chances that you might end up landing in the cold water. Do not try to start a new business while you are still running your old one. This will require you to be disciplined in your thinking and actions. Once you are focused on a new business, you may get distracted and your old business may suffer in the process. You might not be able to concentrate on the sale of your old business and may lose money selling it a in a hurry. Also, your new business might also suffer because you would not be devoting full time and attention to it. The key is to do one thing at a time. Once you are convinced that you should be going for a new business, concentrate on selling the old business first. This will free important time and financial resources that you can devote to building your new business start up.

2. Devote Time and Attention to Planning

Starting a business is a difficult decision to make. It’s not something that you do in haste. It’s better to devote proper time and attention at each and every stage of the planning process. If, and we don’t hope such is the case, you are regretting to be in a certain line of business, it might be because you did not make a great plan. Dreaming is okay, but your dream must translate into facts and figures through careful planning. How will you finance the start up business costs? What will be your marketing plan? How will you manage the workload? What are your goals in 1 year? 3 years? What is your vision of your business? These are all questions you must ask yourself, and do not move ahead until you have put down every little detail into your laptop.
The problem here is, for many people who are looking to sell their business and venture on a new start up business, there may not be enough time to plan. Urgency may exist because the old business might be consuming too much time or returning too little profit, or both. Under such situations, do the best you can to make the transition smooth.

3. Evaluate the Business you are looking to Start

You’ll need to be 100% sure that the new business that you are looking to start is not all glitter and no gold. Remember that the grass always seems greener on the other side. So, make sure that you talk to a few people in your new line of business. Gather facts and figures about your target market. Evaluate whether the market would be growing in future. You should be careful not to get caught in a fad and be left high and dry when the excitement of the fad runs out.

4. Keep Marketing in the Centre

SMEs are at the centre of the British economy, providing over fifty-nine per cent employments in the country. At the centre of any successful SME, though, is a robust marketing strategy. Marketing is around what your new business should be built. You should start by profiling your target market. Think about the need that your product satisfies; then, think about the people who have that need. Ask yourself: what do my customers do to satisfy their need at present? How can I make a difference? That’s where marketing starts. From there onwards, you should think about the media that your customers watch, the places that they go to, and the product attributes that matter to them. After you have achieved clarity about what you need to do, focus on “how”. Think about the skills and resources that you’d require in order to meet the needs of your target market.

5. Learn from Your Old Business

Apply the learning from your old business to your new business. As Einstein said, “insanity is doing the same things over and over again, expecting different results”. You should be doing everything right the second time. However, you’ll need proper monitoring and constant evaluation of your performance in order to be able to apply corrections to your business strategy. Make sure you have a system for monitoring and evaluation in place in your business plan.
Lastly, (but as a matter of fact, firstly), you need to sell your old business profitably. This should be your priority, because you want to capitalise on the time and the efforts that you have invested in your old business.

Business start up is not easy to set up but you’ve done it once before so it should be easier the second time around!

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”

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3 reasons why you want to retain key staff during business sale

The Benefits of Retaining Key Staff

Key StaffA business can be only as good as the people it employs. When taking care of your business, it takes a lot of effort and time to establish it on firm ground and along the way you build up a number of assets. These assets can be tangible, like computers, furniture or stocks. But, it’s the intangible assets that are usually the most important. These intangible assets are your goodwill and your human resource. When you decide to exit your business and are planning to sell it, it is vital that you retain key staff right until the key moment.

The Importance of Key Staff

Unlike fixed and tangible assets that you can buy and sell on the market anytime, key staff is usually an irreplaceable asset. This is because you have invested a great deal of time and money in recruiting, hiring, training, and grooming the key staff in your organisation. Your business, like all other businesses, has a particular culture and environment. Your employees have developed into being productive assets of your business over a long period of time. The performance and productivity of your business depends upon your key staff. Therefore, it is vital that you retain key staff for as long as you want your business to keep performing at an optimum level.

Who Are Your Key Staff Members?

Before you decide to retain key staff prior to selling your business, you’ll need to determine who the key staff members actually are. Usually, the people occupying the top slots in sales, marketing, operations and finance are the employees that you should retain right until after your business has been sold. You may also have a couple of key people in other areas depending on the type of business. For example product designers, engineers or software programmers. There would be one or two people in sales and marketing who know everything about the product, the customers, and the selling process. Similarly, the people in finance know about your current financial standing, your liabilities, accounting methods, business revenue and cost models, and assets.

Reasons to Retain Key Staff

There are at least three reasons to retain key staff during a business sale:

  1. Your business performance depends upon your key staffers. With key staff gone, your sales and profits may dwindle. Your business can even come to a complete halt. Such a situation would seriously jeopardise your business sale. In order to sell your business for profit, it is elementary that you maintain your level of sales and profits. Ideally speaking, your business should be doing “business as usual”. Any impression that your business is slowing down or losing money will make the sale difficult and bring down the expected sale price. Therefore, it is extremely important to retain key staff.
  2. Retaining key staff is not only important for you, it may also be important for the people who will be buying your business. It could aid smooth transition of ownership and unaffected business performance during and after the sale.
  3. Your employees have also invested their blood, sweat and tears in your business. Your key staff members are those people who, apart from being competent, are also motivated and loyal to your business. This loyalty should be rewarded.

To Tell or Not to Tell

Another important decision that you need to make while selling your business is whether or not you should inform your key staff members about your plans to sell the business. You may consider it morally wrong to keep your team in the dark and surprise them when the sale goes through. On the other hand, knowing that the business is going to be sold can make your employees lose interest and motivation. Naturally, they will be looking for another job and might even desert you before you’d like them to. There is no fixed answer, as every situation is different. The best course of action is to make arrangements where your key staff continues to perform the business functions right through to sale completion.
Your sale plan should give due consideration to your key staff. You could make provisions, subject to the buyer agreeing, in the Sale Purchase Agreement (SPA) to retain key staff —the people without whom the business profitability is likely to be affected. You can also motivate your key staff by offering a financial incentive from a successful business sale completion (even if you couch it in different terms if they are not to be privy to the sale process).

In all cases, be mindful that parting with your key staff at a critical time can cause unwanted problems and complications during the sale process. It is important to retain key staff if you want the sale to proceed smoothly and earn a good return on your investment.

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”

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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.

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”

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How Could My Company Be Valued £500k By One Broker and £3.6m By Another?

Company Be Valued

Company Be ValuedHow 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”

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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?

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”

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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.

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”

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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:

  1. A valuation multiple
  2. 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:

  1. Decide on the business economic benefit to use
  2. Use your industry’s valuation multiple (or use 2x sales or 3x EBITDA)
  3. Adjust the multiple up/down when applying to your business
  4. Perform the calculation!
  5. 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…

 

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”

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How You Sell Your Business Will Determine Its Selling Price

How You Sell Your Business…

When you decide to sell your business you could make 50% more or 50% less depending on how you sell your business. When it comes to the how’s, here’s a list starting from the worst way to sell (lower value) to the best way to sell (higher value):

  1. Liquidation
  2. Book value
  3. Unsolicited offer to buy from a competitor
  4. Professional contact introduction
  5. Private Equity Group
  6. Strategic Buyer through a Broker
  7. Strategic Buyers in a Bidding Process

The Liquidation value of a company is often used if a business owner dies or becomes ill. The value does not include goodwill, company earning potential or client lists. By selling your company this way, you’ll get the least value possible. On the flip side, getting Strategic Buyers in a bidding process is the ‘holy grail,’ of selling. This allows for competition and has the potential to increase value through demand.

How you sell your business is a fundamental aspect regarding the value you ultimately achieve. While trawling through YouTube, I found an excellent video that outlines the various ways to sell a business in addition to explaining why. To get a full description on each of these methods, watch the following video created by MidMarketCaptialInc.

How You Sell Your Business Video

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”