Maximising Business Value Before a Sale

Relevant For:

Business owners planning to sell their business

Key Points:

  • Ensure accurate and comprehensive financial information to ease due diligence and negotiations.
  • Implement timely monthly management reports and a detailed financial budget with clear assumptions.
  • Develop a strong strategic business plan to maintain focus and achieve business goals.
  • Strengthen the management team and document internal processes to ensure seamless transition and long-term employee retention.
  • Review and formalise legal agreements to ensure they are transferable to new owners.
  • Seek professional advice early to enhance business value and prevent deal shocks.

Full Article:

Business owners aiming to sell their business, whether soon or in the future, should take strategic steps now to enhance its value and appeal.

Ensure Quality Financial Information

Accurate and comprehensive financial data is crucial. Poor internal financial reporting systems can lead to incomplete and inaccurate information, frustrating the due diligence process and harming negotiations. Implementing timely, quality monthly management reports helps owners understand their operations better and instils confidence in potential buyers. Additionally, a financial forecast with detailed assumptions demonstrates future value, potentially attracting a premium price.

Consider the current quality of your financial reports. Upgrading your accounting system and management reporting doesn’t have to be complex or expensive. Ensure you have a detailed financial budget backed by achievable assumptions and aligned with your strategic plan, regularly reviewed and updated.

Develop a Strong Business Plan

A detailed strategic business plan, with the buy-in of all stakeholders, keeps the focus on business performance. This plan should include:

  • Setting clear goals and breaking them down into achievable tasks.
  • Documenting the business’s future direction and strategies.
  • Keeping the business objectives in focus with a robust strategic plan.
  • Engaging experts, including a transaction advisor, for non-core activities to maintain profitability and growth.

Strengthen Your Management Team

A business with a competent management team in place is more attractive to buyers than one heavily reliant on its owner. Ensure a seamless transition by having a strong management structure and documented internal processes. Additional value can be created if key employees are likely to stay long-term.

Steps to consider:

  • Develop clear internal roles and responsibilities with appropriate policies and procedures.
  • Encourage key staff to buy into the business’s strategic objectives, accept greater responsibilities, and stay engaged.
  • Include effective post-employment restraint clauses in employment agreements to protect the business if employees leave.

Review Legal Agreements

Examine existing legal and contractual arrangements, including property leases, customer and supplier contracts, and intellectual property registrations. Ensure these agreements can be transferred to new owners, as non-transferable agreements can impede negotiations. Formalise key customer and supplier arrangements with contracts.

Take Action Now

Seek professional advice well before starting negotiations for a business sale. This advice can increase your business’s value and minimise potential “deal shocks” during due diligence and negotiations.