How is your business valuation arrived at?
Firstly, we would always recommend working with a qualified valuation expert.
There are several methodologies for calculating a value for your business. The most commonly used being a multiple of profit (plus net assets) – but first we have to define ‘profit’ in order to make the valuation meaningful.
For some businesses, EBIT (Earnings Before Interest & Tax) may be appropriate, whereas for others EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation) may be more meaningful.
These enable the valuer to calculate a profit figure which precludes some items which may be appropriate in the way the business is currently operated (e.g. interest on loans, overdrafts or factoring), but which may not be applicable when the business is sold. For example, if the new owner does not need to borrow, then interest charges would no longer be applicable, thereby improving the bottom line. These methods allow a buyer to better compare the true performance of various businesses.
BUSINESS EXIT STRATEGIES
What are the factors that will affect the value of your business?
Apart from the obvious: profitability – there are many factors that will either add value or devalue your business.
The more of the following attributes your business has, the higher the potential value:
- Consistent revenues but with potential for expansion
- Cash generative with efficient cashflow management
- Good spread of clients with repeat business
- Contracted clients
- USPs and key differentiators in your marketplace
- Strong management team in place working under the owner/s
- Loyal and long-serving workforce which is not too dependent upon one or two key individuals
- Wide spread supplier network with efficient buying
- Up to date compliance (tax, H&S, employment law, cyber security, etc)
- Up-to-date Management Accounts and forecasts
- Strong balance sheet (or net asset value – NAV)
- No onerous warranties or outstanding disputes
- No litigation current or pending
- Location & facilities
- Good reputation
- Intellectual property rights (patents, licences, trademarks, etc)
- Strong brand
We can help you develop each of these areas over time on a consultative basis through our own exit planning system, which enables us to monitor your progression over time. This can be over months, or years, as appropriate.
FINDING A BUYER FOR YOUR BUSINESS
How do we find you a buyer for your business?
We provide a bespoke service for each of our clients and as part of this we’ll recommend the most suitable strategic partner to work with us. This will involve agreeing specific targets to approach, as well as undertaking research to identify potential strategic (trade) buyers and financial (investors) buyers.
BUSINESS DISPOSALS – The Basics
What is the process of selling a business?
Once the business has gone to market, all serious enquirers will be required to complete an Non-Disclosure Agreement (NDA), prior to receiving the Information Memorandum document, or any financial or other sensitive information.
Any seriously interested parties will be invited to meet with the vendors, possibly at the place of business. Any offers need to be backed up with financial credentials which demonstrate that the potential buyer has either available funds, or access to funding to complete the acquisition.
You will need to appoint an experienced M&A lawyer. We can help with this if required.
Once an offer is accepted, Heads of Agreement (or Heads of Terms) are drawn up which will outline the basic deal structure. Once this is agreed and signed by both parties, the buyers can commence their Due Diligence process, which can take many weeks to complete and will involve a significant time commitment from the vendors.
In some cases, buyers might request to meet with key clients and personnel. Obviously, this has to be handled with great care.
Once Due Diligence is completed, the next stage is to draw up a Share Purchase Agreement (for share sales), or Sale Purchase Agreement for other kinds of sales (eg assets sales only, partnerships, etc). This will include the detailed deal structure and transaction details, along with Warranties and Indemnities which the seller has to give.
Once the Agreement is ready, a date for Completion will be set, where both parties and their advisors meet to thrash out any last minute queries and hopefully sign the Agreement.
COSTS INVOLVED IN SELLING MY BUSINESS & TAX PLANNING
You would need to factor in significant work which would need to be carried out by your accountant and possibly by your IFA. In addition you will need to employ the services of an experienced corporate M&A lawyer, which will cost thousands of pounds. Most or all of these fees will be paid upon (or close to) Completion.
Of course you will need to discuss tax and investment planning with your IFA and accountant well before the sale completion, especially to take account of any deferred consideration, which may attract tax in the short term before all funds are received. They will also advise regarding Capital Gains Tax and Entrepreneurs’ Relief.
TAX & WEALTH PLANNING
In order to maximise the future value of your hard-earned wealth, it’s important to get expert advice on wealth management and investment planning.
We offer clients an introduction to our strategic partners to begin the process of tax and investment planning. Of course, this process should be begun well before the sale of your business.
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