What are your key value drivers?

If you want to maximise exit value (and who doesn’t?) it’s vital to remember that, just as beauty is in the eye of the beholder so value is in the eye of the acquirer!  It’s not just the monetary value that you currently have in your business that will maximise its sale value, it’s the value that will transfer to the new owners.

So when you’re preparing a business for sale focus on building up its transferable value.  A great start is  by identifying the main strategic value drivers.

These are the characteristics in your business that will either enhance future growth prospects or reduce the risk associated with owning the business.  In other words, the better the business performs in these key areas, the greater the selling price will be.

Value drivers can be tangible, like physical assets, cash etc. but there are a range of intangible, “hidden” assets that have strategic value. Some, like sustainable revenues and cash flow are common to all types of business whereas others, for example Intellectual Property, licensable products etc. will be more industry specific.

Taking time to identify your company’s strategic value drivers will be well rewarded when the time comes to sell up.  Start by looking at your business from a buyer’s perspective.  Yes, revenue, profit and cash flow are important – after all they are usually the first thing any buyer will look at.  But what about human capital – buying skills is a powerful motivation for an acquisition.

Here are just 3 examples of value drivers that will enhance price and saleability.

  • People – Buyers will also want key employees to stay in the business so the quality of your workforce experience, expertise and depth of knowledge has real value.  It will provide continuity during the transfer and will be essential to the growth of the business under new ownership.  If your business relies more on capable, well-trained employees – not you, the owner – it reduces the risk for a buyer and that drives up exit value.
  • Processes – Another important value driver is something that many business owners might see as just a part of business management and that is Documented Processes and Procedures.  These demonstrate that the business can be maintained profitably post-sale.  Don’t limit these to operational processes; include HR policies and processes, employee communication systems, client management systems etc.  So don’t just do these things, document them and increase the value of your business.
  • Client Base – One of the main value drivers and the more diverse it is the more value it attracts.  It is important that no one client represents more than 10% of revenue and ideally no more than 5%.   If the client base covers a range of industries even better.  Not only does this help to protect your business from the loss of any single customer and the associated risk of serious cash flow issues if one or more customers are lost, it also mitigates the risk of economic factors in certain sectors.

If  you are considering selling a business within the next 3 years it’s important to start preparing now. The most successful transactions are those where the vendor has spent time getting the business into shape and has a clear exit strategy.

Want to know more?  Come along to one of our free events – you can find out about the next one and reserve your place here.

James WhittakerJames Whittaker,

Account Director at Evolution Complete Business Sales Limited.

 

James is a business professional, experienced in people and business management, business development, business strategy, marketing, deal origination and directing corporate divestment projects.

With 10 years M&A experience, he has been involved in many sell-side transactions across a variety of sectors ranging from distribution to bio-technology.

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