Posted on April 8, 2013August 12, 2013 by Kim Brown — 1 Comment

Business Valuation – What Is Your UK Business Worth?

Business Valuation Essentials.

Recently, I came across a statistic on an online business sales website stating that 66% of business owners don’t know what their business valuation. Admittedly, I didn’t know how valuable my business was until I took a business growth course. During the ‘money’ section of my studies I was pleasantly surprised to discover my company was worth several millions. Unfortunately for many of my classmates, they discovered just the opposite.

Do you know how much your business is worth? If not, let me walk you through some of the elements that affect your value and finish off with an easy calculation you can do.

What affects your business valuation

Business Model – There are several business models however, to give you a quick example…a company that has a reoccurring revenue model will be more valuable than an outfit that has to continuously pitch for new business. Reoccurring revenue provides a company with an embedded value, or in other words, a strong certainly for future profits. An agency type model, for example, has to rely on winning future work introducing a higher risk (and harder work) for profit growth.

Industry Sector – Some industry sectors are valued higher than others mainly due to their growth potential. Technology businesses created in a way that can scale nationally/globally have the ability to provide huge value and in turn create huge value. On the opposite side of the scale, a local business (such as a used car dealership), will have a capped value simply due to the industry and obvious growth limits.

Age of Business – Older businesses with a track record of growing profits will be valued higher than younger businesses. An older business will be in the position to demonstrate more proof of stability and profitability.

Circumstances of Sale – If you need to sell because of health issues, poor performance or any kind of personal problem your value could be drastically impacted. Buyers love desperate sellers as they use misfortune to their advantage. The more desperate the seller is, the lower the value may drop.

Tangible Assets – A company that has equipment, buildings and/or stock can be valued by its assets. If you’re sitting on quite a few tangible assets, that alone provides a base figure to start your valuation. Service companies, on the other hand, often have very few tangible assets.

Current Economy – If the economy is suffering and you want to sell a luxury business it’s highly probable that a sale will be difficult. On the other end of the spectrum, parting with a fast food business during a recession could come easy – bad economies cause an increase in fast food consumption.

Product/Service Lifecycle – If your product or service is in demand, your value will go up. If however, you’re declining business your value will suffer. Think of the difference between tablet devices and CD’s. One is on the upward trend and the other one has been in massive decline over the last several years.

Financial Performance – I’ve saved the most important for last. Financial performance is key. If your historical management information reports and accounts prove exponential growth, by definition, you’re a valuable company. Before selling, you want to do everything possible to ensure that your company is a growth machine. Otherwise, you can still sell, however the value of the business will be less and you’ll have to prove its value in other terms or demonstrate how particular changes will positively impact the growth.

Your Business Valuation and YOU

Before calculating a ballpark valuation for your business, there’s one element that is very important to consider. Your business is more valuable if it can run without you. If you had to take a 6 month sabbatical being completely cut off from your company starting right now, would you still have a company at the end of that duration? Buyers don’t want to buy you because you’re busy running the business – they want to buy a company that runs regardless as to whether you (or any key staff member) are there or not. Keep this in mind as it’s often on of the largest obstacles in quickly exiting a business.

There are loads of other facts that affect a business valuation. It depends on what the buyer wants and their acquisition reasons. Some buyers want a proven return on investment whereas other buyers are looking to expand their market share or simply want an in-road to your customer database. Lot’s to think about – eh? Let’s take a look at calculating the ballpark value of your business.

Value your Business with the Business Multiplier Calculation (Net Profit Multiples – P/E Ratio)

Some industries have multiples associated to them. These multiples are used in conjunction with a company’s’ profit after tax. Many use a multiple between 1 and 10 whereas some technology companies use a multiple of 25. So, if your profit after tax is £1,000,000 and your industry multiple is 4, your estimated value would be £4,000,000.

You can also create a multiple yourself by considering your yearly return on investment. Let’s say that you consistently get a 20% return per year. 20% is one fifth of 100% therefore providing a multiple of 5. With the above example, your business would then have an estimated value of £5,000,000. Once you have an estimated value you then need to consider the numerous elements that can then affect that number.

Some factors, like having a database of 100,000 customers will increase your value as it’s an asset whereas other factors, such as the business relying heavily on you, will drastically decrease it.

If you are just starting on your journey to selling your business there’s a lot to think about. The thing to keep in mind is that you’re not alone – there’s many of us out there that have successfully and profitably exited our business.

For a deeper understanding of the whole start-to-finish business sale process, please start your journey by reading the FREE Chapter: “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”

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”

Posted on April 7, 2013April 2, 2016 by Kim Brown — Leave a comment

Selling Your Business – Working On Your Business Not In It

Working On Your Business Not In It.

Starting and growing a business in the UK is no small feat. In fact, if most business owners understood the difficulties beforehand, they’d probably never start! We employers go against the grain, carry on despite our family members saying, ‘Are you crazy?’ and we push, shove, and force our way down a bumpy path of growth. Things at first are a massive struggle but over time the profits start to come in and new employees lighten the load.

The whole journey of business creation and growth is amazing. There are times of elation – like landing the first big client and times of woe – like when the economy threatens to smoulder out the fire of success. There are ups and downs. Good ideas and bad. Successes and failures. But we business owners keep on keeping on because we’ve learned that through tenacity and hard work rewards will come.

The unfortunate thing is, however, in all our zest for world (or local) domination we often lose sight as to why we created our business and what we wanted from it. Furthermore, we fail to notice the signs that we’ve changed and want something different or something more.

For over six years I had my head down working, working and working. Even my dreams consisted of management reports, new marketing strategies and ways to crack my latest HR nightmare. I became so caught up in making the business a success that I didn’t even realise how successful it actually was. A sense of balance was long lost and I forgot why I was doing what I was doing.

Like many others out there, I created a successful business however I failed to create a successful life. Instead of working on the business I became an expert at working in the business. The larger we grew, the heavier my load felt. I kept doing what I had always been doing because I didn’t realise any other option. You don’t know what you don’t know.

Fortunately, my business partner enabled me to exit by purchasing my shares. I was too far gone to be salvaged. At the time I had decided that I had to get out and out I went. However, in hindsight I’ve realised quite a few things. We business owners don’t enter a business with our exit in mind. We don’t always carve out a business that supports a lifestyle that makes us happy. We work so hard to get things going that once they’re going we just keep working hard. Knowing what I know now, I can see that I kept doing the things I felt I had to do despite the fact that they made me insane. I didn’t have to carry on working in my business – I could have worked on my business.

Whether you’re fed up like I was and are selling your business or your simply tired of the same old grind, working on your business not in it will enable your journey to change for the better.

To pull yourself out of the day-to-day hum drum there are few quick things you can do to get started. Consider going on a business growth course, hiring a growth consultant/non-executive or join a networking group focused on top level strategy.

If you need a helping hand, send me an email letting me know what you’re after and I’ll give you the details of my recommendations. Email me at: Kim@BusinessWand.com

Posted on April 6, 2013April 2, 2016 by Kim Brown — Leave a comment

5 Top Tips To Selling Your Business

5 Tips You Must Know Before Selling Your Business!

Doing something for the first time creates a steep learning curve. Think about the lessons learned when starting to drive, becoming a parent or taking on a new hobby. At first, things were difficult but over time and through practice the curve settled down. You made mistakes but kept practicing and in the long run a level of proficiency was mastered.

Unfortunately, when you sell your business you don’t have the opportunity to allow the curve to settle down. There’s very little room for practice and mistakes can cause devaluation or even break the deal. You either get things right or you don’t and the latter can result in excess costs, time delays and sleepless nights.

Selling your business will most likely be a one-time event rather than a skill you can learn to master unless you set out to become a serial entrepreneur. That being the case, it’s imperative to understand how the sale process works, who the players are, what they’re trying to achieve and how to ensure you can maximise your sale value.

Begin the sales process with the end in mind. Take a few hours away from the business, sit in a peaceful room and visualise what you ultimately want to achieve. If you don’t know where you’re going chances are that you’ll end up somewhere that you don’t like! Imagine the best possible scenario. Think about the amount of cash in your bank, the amount of time you’ll need to stick around post-sale and then really get creative and picture all the things you want to do once the business is sold. Once you’ve tried various scenarios, get a piece of paper and create a mind-map or vision board with words and/or images to encapsulate the end goal. Think about how you’ll feel and pretend that you’ve already achieved a sale – describe what you see, think and feel on paper. Keep this with you at all times. When fears or doubts come up refer to it.
Maximise valuation by being prepared. When selling a house, buyers will look for reasons to negotiate a lower price. If the survey reveals a bad roof, damp or some kind of serious fault the buyer may reduce the offer or worse – walk away. Same goes for your business. Being prepared means taking the time to clean things up, get everything organised and put your best foot forward. To best be prepared don’t enter the sale process blindly – learn what you need to do look as attractive as possible before you place your business up for sale. (If you haven’t done so already, purchase the book, “How To Sell A Business: The #1 guide to maximising your company value and achieving a quick business sale”
Consider a range of sale options and make a commitment to yourself on what you will accept versus what you won’t. When a buyer takes a serious interest in you they’ll create what is called a ‘Consideration’ that outlines a potential deal. The amount of money you want is one thing to contemplate but that’s only one part of the Consideration. The deal can include cash right away, deferred cash, cash and options, deferred options, and on and on. Additionally, the offer might require an earn-out. This is where you have stay with the company for a set amount of time and hit specific targets to realise your pay-out. An acceptable consideration can be planned for – make sure you know what you want and create a strategy on how to increase your chances to get it. For example, if you want to avoid an earn-out, your strategy must be one that eliminates your value to the business before you sell.
Pick your team carefully. Remember this isn’t a journey that allows for practice or making mistakes. The team members needed – Corporate Broker/Financier, Accountant, Consultant, Tax Advisor – play this game often. Even through they will work on your behalf, they may have their own agenda and objectives. Some will be right for you and others won’t. Research how best to compare services and match them against your end game. One wrong team member can ruin the whole process – don’t let this happen to you.
Find a friend or mentor you can confide in when times get tough. Despite the fact that you may be eager to exit the business, it’s still likely to be an emotional journey. Life can get a bit bumpy when the professionals treat your business like a mere transaction, deal fever takes charge or a completion falls through. Have someone available that knows what’s going and can be on hand to coach you through the hard times and celebrate your successes.

Selling your business in the UK can be an exciting adventure that results in great success. It can also be a life-sucking nightmare. Don’t enter the process blindly – educate yourself through independent information rather than learning by experience alone.