Assessing and maximising the value of your company

Present your business as an attractive investment and sell it for a great price.

Do you know how to value your company? Many business owners don’t. Those with wildly optimistic aspirations will never be able to sell. At the other extreme, those with no inkling about the true value of their business will simply close it down when they decide to exit.

To avoid falling into either of these traps, you need to set realistic expectations, and draw up a plan to maximise the value of your business when you come to sell.

The keys to a successful business sale

There are three stages to selling a business:

  • determining a guidance value
  • maximising its value in the eyes of potential buyers, and
  • managing the selling process.

All of these are complex operations, and TCii is ready to help you carry them out in a way that will maximise your return on the business you have nurtured. But here is a summary of some of the necessary actions.

1. Valuing your business

Always remember that the true value of a business is what someone will pay for it. This will vary from one buyer to the next, and will depend in part on the type of buyer they are.

  • A strategic buyer will be interested in the return they can achieve on their investment through the synergies with their current business. This is the best type of buyer as they will value your business largely ignoring indirect costs.
  • A financial buyer will be interested in the return they could see on their investment if the business were to run on the same basis as it does now.
  • An asset stripper will be looking at the value of your individual business assets, and the price at which they will be able to sell them. They are normally only involved in distressed sales.

Whatever type they are, prospective buyers will use various valuation techniques. The most common are:

  • multiple of earnings value
  • multiple of turnover value
  • net book value
  • forward-looking business model value
  • simplified discounted cash flow value.

Each valuation method produces a lower-end and an upper-end figure. You may achieve an increased deal value if you accept a deferred payment or earn-out arrangement. Please contact us for more information on valuation techniques.

2. Maximising the value of your business

The worth of a business hinges upon the amount of profit a buyer can extract from it, balanced by the risks involved. Your profitability, based on your sales, costs and asset values, is only the starting point. It is intangible factors such as key business relationships and contracts with local businesses or trade partners that may offer the most value to a potential buyer.

Contact TCii for a detailed “Maximise the value” checklist for preparing your business to attract optimum offers. The checklist covers recommended actions in five categories:

  • sales and marketing
  • operational
  • financial
  • legal
  • on point of sale.

3. The selling process

No two business sales are the same; each will have different challenges, and TCii will be able to identify these for you. However, a typical transaction will involve the following broad stages:

  • putting together a business sale team
  • deciding on the right time to sell
  • preparing documentation for the sale, including accounts and asset lists
  • preparing a valuation report and marketing brochure
  • ensuring that all supporting documentation is ready for buyer enquiries and the eventual due diligence process
  • marketing the business
  • buyer management, including:
    • vetting the buyer for suitability
    • buyer’s signature of non-disclosure agreement
    • provision of sales memorandum to give the buyer an overview of your business
    • dealing with buyer questions
    • meetings between yourself and the buyer
    • supplying the buyer with a full information pack
  • submission and consideration of buyer offer
  • negotiation and mediation
  • preparation of heads of terms agreement
  • due diligence by the buyer
  • preparation and signature of sale and purchase agreement
  • exchange of contracts and completion of the deal.

Next steps to a profitable business sale

For more details on any of the three stages that are key to a successful business sale, email us or call us on 020 7099 2621.

Also see our guidance on exit strategy and implementation and succession planning.