How Much is Your Business Worth?

While lockdown rules begin to change and businesses tentatively reopen their doors, the effects of the pandemic on most are emerging in stark relief.

Even before Covid-19 arrived, digital reform was changing the way the world worked.  When we went into lockdown, the light breeze of ‘reform’ blew up into a digital hurricane that swept the globe, transforming industry everywhere.

It more than likely changed your business, too.

We’ve all heard the dark mutterings of “severe recession”, “depression” and “global economic crisis”.  As time goes by, some of the rumours seem to be backed up by the freefall in value that some poor companies face.

It’s easy to buy into the panic.

But the world still spins and business carries on.  If you were planning on selling before the pandemic struck, you don’t have to ditch your plans.

As I said in an earlier article[1] just after the start of lockdown, you can afford to stick to your sales plan.  With an experienced team to help you through the process, you can find the right buyer without having to drop your price.

I can back that up.  We have certainly not noticed any “chipping” of sales prices since Covid-19 took hold earlier this year.  We’ve had five deals agreed during the lockdown.  The average multiples of earnings were 9.25 – ranging from 7.0 through to 12.3.

While deals are taking a bit longer and there’s some rejigging of the deal-structuring process, the prices have remained firm.  This is clear evidence that a good business will always sell – as long as the sale process is in the right hands.

A good starting point is a realistic evaluation of your business.  Just how do you do that after all the changes it’s gone through?

When you get it right, your understanding of your business’s value becomes a competitive advantage.

Here’s some welcome good news:  the process is much the same as it always was, with just a few extra variables to consider thrown in.

It’s a reassuring “back to basics” exercise that you should go through with the help of your business sales experts, of course.  In the meantime, though, here is a ‘checklist’ and brief overview of the points to bear in mind.

THE GOLDEN 10 ESSENTIALS OF VALUING A BUSINESS

These are the traditional markers that successful sellers have followed in the past and that still apply to selling a business – yours, too, even if it has changed a lot.

  1. COMPETITION:  How is your business measuring up to others in the same category?  Are you doing anything significantly different to stand out from the crowd?  Are you marketing your USP?  What has the recent disruption done to your competition and what opportunities has this created for your business?
  2. BUYER INTEREST:  It takes more than one expression of interest to make your business sellable.  You need several bids competing with each other – creating the interest and driving the value up.
    Finding those interested parties takes time and the expertise of a team with the right connections.
  3. YOUR MARKET:  Just as your business has been affected by Covid-19, so has your market.  Don’t assume that it is the same size as it was before … but then again, don’t assume that it’s shrunk.  Pockets of it may have grown.
    It’s time to put in some new market research.  What trends might affect your business’s performance in the coming months?  What has changed in your marketplace and what unique aspects of your business make you attractive?
  4. INDUSTRY TRENDS:  Have new gaps formed over the last few months during the radical changes brought about by digital transformation?  Or does it feel as though the world has lost interest in what your business has to offer?
    I highly doubt the latter … but sometimes you need an objective expert on hand to help you to see the forest for the trees.
  5. SALES GROWTH:  Have you been able to increase your prices or add new product lines?  Have you invented new services to add to your range?  These all increase your business’s value.
    Even if sales volumes have dipped during the disruption, what does the recovery trajectory look like?  Far from weakening your case, if your business is showing a rapid return to normal business and growth it demonstrates resilience and therefore decreases the risk for the buyer.
  6. SUM OF THE PARTS:  This is a good opportunity to take stock and see which parts of your business are the more valuable.  When you can identify those, it might be time to cut the least valuable and the most costly
  7. OUTLOOK:  Your buyers will want to know that the future is at least there, if not rosy.
    While this year has flung unprecedented variables at us all, it is important that you keep up to date with what’s happening in your market and an eye on what the predictors say.
    However, don’t simply accept all that you hear; you can take it from me, there are a lot of successful business sales going on as we speak.YOUR
  8. MANAGEMENT TEAM:  This is the valuable, intrinsic life force of your business.  Although changes often occur in management after a sale, these ship stewards will be the key to a smooth handover.
    Are they in shipshape?  Were you to handover the business tomorrow to a new owner, would they be able to keep it on course?  They need to be communicating properly, sharing deeply ingrained company core values that are evident in their very personalities.
  9. YOUR STAFF:  Speaking of core values, has everybody on your staff adopted them?  Are they properly trained, committed and sufficiently informed as to what’s happening in the company?
    An insecure staff team is one that’s very hard to motivate.  Some people will be irreplaceable; others will need to be let go.  An objective eye is useful, here; another instance in which you’ll be glad for the input of your experienced business sales team.
  10. VENDORS:  Good relationships with contracted vendors can add a lot to the value of your company and play a compelling role in exciting potential buyers.  Don’t exclude those!

There you are, then.  Those are the tried and tested, golden rules of business evaluation.  Sometimes, getting back to basics is the very best thing you can do in times of change.

What of the new ‘essentials’, though?  What are the areas that need to be measured since the digital maelstrom had its wicked way with your company and rudely altered it beyond recognition?

In our experience of the last few months, they are these:

THE GREAT 8 ESSENTIALS OF VALUING YOUR BUSINESS

  1. INNOVATION:  Get that dynamic team of yours in to generate new ideas to become the leaders in your changing field.
    Keep them trained up, add to their skillsets and encourage a culture of ideas-sharing.  You want to be the company that your competition emulates, not the other way around.
  2. SECURITY:  This one should go without saying.  It’s remarkable, though, how many breaches in cyber security crop up in the presale diagnosis.  It’s enough to chase away any serious prospect and can be sorted out with a simple delegation to an appropriate, highly rated IT team.
  3. BRAND VALUE:  Perceived value often affects the sale price of a company.  While your implementing a marketing strategy takes sustained budget and energy, when it’s done properly it pays dividends.
    Irrespective of your actual assets, if your customers and competition alike know your brand well, then your company’s high perceived value will translate to its actual one in the sale.
    Invest in a strong marketing team or make sure that your in-house one is trained to the hilt and coming up with brand-conscious ideas all the time … You’ll be able to add a few bob to your asking price when the time comes.
  4. DATA OWNERSHIP:  A juicy carrot for any would-be buyer.
    Do you own your customers’ data?  Are you creating your own data analysis or do you rely on an external company to keep an eye on the reporting for you?
  5. CUSTOMER ENGAGEMENT ONLINE:  This is one for the technical whizzes in your marketing department.
    Your website needs to be pulling plenty of traffic – especially through ongoing, comprehensive social media marketing campaigns.  Make sure that they’re streamlined and adaptable, so that you are not wasting money on exposure in the wrong places.  The online marketplace changes all the time.
  6. IT:  Speaking of techno knowledge, it stands to reason that you need to have a system that’s robust, streamlined and user friendly for your entire team.
    Is it time for you to update your CRM?
    Systems often have bits added to them over time, leaving you with a clunky, ineffective dinosaur of an IT system.  Clear it up before you put your business on the market; it’s one way of improving your bottom line almost immediately, as there’s no bigger time waster than a slow, confusing and muddled IT system.
    Whether you own the intellectual property on your software can make a significant difference to your business’s value, too.
  7. BUSINESS MODEL:  If you own a legacy model, how much is it worth right now?  Has its value increased or decreased lately, and what is your projection of its value in a year’s time?
    If the changes that you have gone through during the pandemic have provoked you to come up with a new model, take care to plan as far as possible how it is going to look and what it’s effect on the present model will be.
    How long will it take to implement?  Digital business models can be new and alien to work with at first, but there’s no doubting the streamlining of costs that they can deliver.
    Find the right people to brief and work with on this, staying on top of how it will deliver for you in the future.
  8. CUSTOMER EXPERIENCE:  One of the most important essentials – and in fact, one of the “Golden 10 Essentials”.  I’ve listed it here, though, because your customer might be experiencing your business in a totally different way by now.
    Digital transformation affects your customer as much as it does your company.  Of course, he will be reviewing your business more regularly online, too, so it’s as well to listen to the new ways he says he wants to experience your products and service.
    Is the online transaction process smooth?  If there are problems, can he reach the right person to talk to within minutes?
    The more good reviews and chat you can inspire online, the better for your brand, your perceived value and then your sales price.

While some of these might seem obvious when you read them here, not all of them will spring to mind if you’ve been going through traumatic adaptations in your business over a short space of time.

Hopefully, this checklist will help you to start to get your thoughts in order.  You don’t need to change your plans about selling.  Take heart – there are a lot of good transactions happening out there and yours can and should be one of them.  We have plenty of examples to convince you of that.

You can discover the more accurate, true value of your business by talking to one of the team at EvolutionCBS.  Drop us a line by clicking the link below.

Looking forward to hearing about your dreams –

Mike Whittle

Find out how you can start to prepare your business for sale by joining our next webinar www.evolutioncbs.co.uk/events

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