Making the Most of Your Business Value

Most business owners have a sizeable portion (if not all) of their pension tied up in their business and yet have no clear idea or plan for how they are going to get it out. In order to live the kind of retirement they’ve been dreaming of.

So if you are here to hear more about how you value your business, protect and build it before you finally get the value out then you are in the right place.

The Facts

80% of all businesses that are “put up for sale” never find a buyer leaving the business owner feeling that they’ve worked most of their adult lives for nothing – yet there are more choices than selling to a 3rd party or just closing your doors

Over 40% of all business owners exit because of unplanned events that mean they aren’t in control of the way they leave their business – and neither is their family or the employees who are often left with a mess to sort out.

In family businesses only 4% make it to the 4th generation……. Just think about that for a minute.  You spend your life building something for your kids and a legacy – yet by the time your grandchildren come to be of business age there’s only a 1 in 25 chance they have anything left.

All of this relates to businesses that have done the hard work of surviving the first 5 years!  Survival rates for business are scary – only 1 in 10 gets to celebrate it’s 10th birthday.

Are you in danger of letting your business fade away, with nothing but a lifetime of hard work to show for it?

It’s a common belief amongst business owners that they can just give a business broker a call when they are ready to retire and the broker will find a buyer in a few months.  You start planning to be on taking your wife/husband on that lifetime cruise at Christmas….. But are you leaving money on the table?  How do you know?

Most people go through one business exit in their lifetime – and the process is hard on many levels.  Physically, emotionally and mentally.  Then if you do find a buyer, its not usually a case of handing over the keys and getting the cash – many buyer want golden handcuffs so they can be sure of the value before you disappear into the sunset.  You’ll be asked to hold back some of the money and stick around while having no control of the business you built from scratch.

Are you worried that you might die before getting the value out of your business?

The value of your business is based, roughly, on the Profitability and the Multiple.

Most people work on the profitability of their business as a matter of course because that what is usually paying you a salary an dividends.  But the value of your business to a buyer is about more than that.  Whilst profit might be the first indicator of value to a buyer, when they start doing their due diligence they’ll soon uncover risk factors and uncertainty about the future that will get them quickly reassessing their offer price.

Profits are invariably adjusted for a variety of “add backs” – this is where they assess the profitability based on market rates for employees, including the business owner if they are involved in the day to day.

The multiple is often misunderstood and can take on mythical proportions.  In listed companies it’s a defined formula that is based on something called Price Earnings Ratio.  In unlisted, private companies there is another general rule of thumb which is the profits divided by the net assets (so if your net profit is £100k and your net assets are £25k then your multiple will be roughly 4.  Now that also assumes that all things are equal and there are no other risk factors.

The risk factors buyer look for include:

  • Your systems
  • Reliance on the business owner or key staff
  • Organisation structure
  • Consistency, reliability and repeatability of your products / services
  • Reputation

I could go on – in short the buyer is looking for certainty.

So what about the challenges?  Because if this was all easy and straight forward you’d be doing it already, wouldn’t you?  Sometimes you know what outcome you want but you just don’t know the “how” or maybe the right questions to ask to get the answers and direction you are looking for.  Put simply you don’t know where to start.

Sometimes being “in” your business means you cant see the route to the big picture – after all the day to day kind of crowds out any thinking time.  And the added dimension is “its your baby” – that can mean it’s a bit harder to be objective about your role in it.

Of course this needs a mindset change – its not just the business that needs to get exit ready – you do too.  Its often the hardest part – letting go and getting out of your own way.

Jo Fairley, who founded Green and Blacks Chocolate, cried herself to sleep when she lost control of her company having sold it for £30m until her husband said “you can have control or you can have the money” – she stopped crying.

The other big challenge is overcoming inertia – to just start.  The sooner you do the sooner you lock in the value of your company.

So one question is “what can you delegate for immediate impact on you, your money, your time and your energy”?

You only have 3 roles in your business:

  1. Generate revenue
  2. Improve effectiveness (leadership – continuous improvement – quality)
  3. Stay legal

What can you unload to feel lighter and have more time space energy and capacity to think clearly about your future?  Because where you will be in 3, 5 10 years time will be directly related to where you spend your time, energy and thinking right now and for the foreseeable future.

So how do you get started?

There is one thing you can do TODAY that will, if you act on it, have an immediate effect on YOU and your business – look at what you can delegate  to enable you to focus on your 3 primary roles of generating revenue, becoming more effective and staying legal.

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