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Following on from our earlier post on 5 Great Ways to Add Value to Your Business, here are 5 More Ways to Make Your Business Valuable.

But first, and to recap, the previous article mentioned 1) building repeat business 2) making the business less dependent on you 3) making your business cash-generative 4) building scalability and 5) taking care of the relationships that count. Clinton Lee, a business broker adviser, provides five more tips:

6. Pay lots of tax. Businesses try to construct their accounts to pay as little tax as possible. This is a mistake. As counter productive as it may seem to pay more tax than necessary, it’s a good idea to do so in the run up to selling a business. Declare an additional £1,000 in profit and you’ll pay £190 more in corporation tax but you’ll increase the value of your business by several multiples of £1,000. As an illustration, if a buyer has valued your business at 5x net profit, you’ve lost £190 in tax but gained £5,000 in value.  It’s a no brainer. Even if for several years you’ve been declaring “more profit than necessary”, you’ll still recover all of it and then some when you sell!

7. Keep immaculate records. Buyers love good records as good records usually indicate a well run business. Accounting records should be computerised and lend themselves to easy analysis and the extraction of intelligence / breakdowns / management data. Financials should ideally be supported by other documentation such as budgets, projections, a business plan, contingency plans, growth targets and strategies etc. Buyers also like to see bills being paid on time, banking covenants being met, debtors being followed up. Good control over legal, HR, tax, environmental and regulatory related records and documents is also key. Proper operation manuals, guidelines, company rules etc., say a lot about how your company is run.

8. Related to the very first tip about building repeat business is building recurring revenue. Having repeat customers is great. Having them signed up to a subscription payment plan is even better – it’s repeat customers on steroids and adds significant value to your business. Think recurring revenue is only for SaaS or tech businesses? You couldn’t be more wrong. Even many high street retailers can build some element of recurring revenue into their business model.

9. Remove risk. The higher the risk buyers perceive in your business, the lower the price they’ll be willing to pay. Identify areas of risk and deal with them. Is too much of your turnover coming from one (or a few) key client(s)? Are all your sales being driven by one sales person? Are you highly reliant on a particular supplier? These are all risks that buyers WILL identify when assessing your business. If these risks exist, they will damage value.

10. Use a professional to handle the sale of your business, and get them in as early as possible so they can advise on what needs to be fixed to ensure best price. The value that a good adviser can add to your business is generally several multiples of what you’ll pay them in fees. And the earlier you get them in, the better.

For a no obligation meeting to discuss maximising your business exit, please call me on 01299 405999;
or email: john@strategic-business-exits.com

You already know that your company’s revenue and profits play a big role in how much your business is worth.

Do you also know the role cash flow plays in your valuation?

Cash vs. Profits

Cash flow is different from profits in that it measures the cash coming in and out of your business, rather than an accounting interpretation of your profit and loss. For example, if you charge £10,000 upfront for a service that takes you three months to deliver, you record £3,333 of revenue per month on your profit and loss statement for each of the three months it takes you to deliver the work.

But since you charged upfront, you get all £10,000 of cash on the day your customer decides to buy. This positive cash flow cycle improves your company’s valuation because, when it comes time to sell your business, the buyer will have to write two cheques: one to you, the owner, and a second to your company to fund its working capital – the cash your company needs to fund its immediate obligations like payroll, rent, etc.

The trick is that both cheques are drawn from the same bank account. Therefore, the less the acquirer has to inject into your business to fund its working capital, the more money it has to pay you for your company.

The inverse is also true.

If your company is in a cash hole, a buyer is going to calculate that they need to inject a lot of working capital into your business on closing day, which will deplete their resources and lessen the cheque they are able to write to you.

For a no obligation meeting to discuss maximising your business exit, please call me on 01299 405999, or email john@strategic-business-exits.com.

In marketing my client’s excellent West Midlands-based manufacturing business, I have been approached by over 90 enquirers in the past 8 months.

Many of the enquiries have come from investment companies and individual investors seeking well-run and profitable manufacturing and engineering businesses in the West Midlands area from £1m to £10m turnover.

I now have a select database of serious potential investors and acquirers so, if you’re considering exiting a similar business, please contact me in strictest confidence.

1) Repeat after me: Repeat business adds value to my business.

Acquirers like nothing more in a business than customers who keep coming back for more. And if they have to come back to buy from you because they’re contracted to, all the better.

2) You probably think you’re irreplaceable in your business. I know I am. But, guess what? Buyers don’t like that. They want to acquire businesses that are not reliant on the owner. Or anyone else, for that matter.

If you get a good, solid team of people around you, not only will you be able to take a step back occasionally but when it comes to exiting your business, it makes it easier to sell because, quite frankly, the new owners won’t want you around for any longer than necessary, no matter how much of a genius you are. Even I wasn’t wanted when I sold my businesses. Unbelievable.

3) Turn your business into a cash machine. Buyers like cash-generative businesses and the more cash in the business, the less they’ll have to fund the working cap themselves once you’re paid off. So, make sure your invoicing is swift and your cash collection efficient and firm.

4) Make your business like Ben Nevis: scalable.

Explore ways you can scale up your business model – could it be franchised, for example?

Are there synergistic bolt on products and services you could add to your current offering? Could you expand into new territories? Do you own IP that could be licensed? Could you appoint agents or distributors?

A scalable business is a saleable business.

5) Make friends with everyone. You never know who your buyer might be, or where they come from.

Food for thought – I’ve sold 4 businesses of my own and the buyers were as follows: a) a client, b) a competitor, c) a licensee, and d) a synergistic business.

So, it pays to be nice to as many people in business as possible because they may well come back and buy you out.

For a no obligation meeting to discuss maximising your business exit, please call me on 01299 405999, or email john@strategic-business-exits.com.

It’s looking good. You’ve received a great offer, it’s gone to Heads and due diligence is well underway.

You could book your ticket to the beach but unfortunately part of the deal is that you have to stick around for 2 years to get the rest of your money in a performance ‘earn out’.

Well, that’s not so bad is it? At least you’ll have your up-front part of the consideration in the bank. Well, yes but you’ll have little or no time to enjoy it – the Earn Out Monster will see to that.

So, the deal is done and you turn up to work at your office – I mean their office – and the name above the door has already been changed. The re-brand has started.

Your staff – I mean their staff – have all been briefed and inculcated in the new regime’s ways of doing things – they blame you for this.

The petty cash tin and your favourite bourbon biscuits have been snaffled by the newly-installed FD.

It dawns on you that this is no longer your business yet you have to be here for 2 more years working with Neville, the new MD. A driven character who will very soon drive you up the wall.

Still, at least there are clauses in the Share Purchase Agreement that says they can’t interfere with your ability to deliver your targets and achieve your earn out, aren’t there? Yes there are but will that stop them from deliberately or inadvertently distracting you from your quest? No it won’t.

This, my friend, is when the Earn Out Monster comes out to play and you will have to confront it, fight it and slay it.

Earn outs may be a necessary evil but contact me and I’ll help you overcome it: john@strategic-business-exits.com.