If you are at the stage where you want to exit your business, there are certain things you need to think about;
1. Calculating Value
A valuation document is the single most useful piece of financial information about any company, so it requires an accurate and comprehensive approach.
It is by no means the only thing to consider but is a powerful tool nevertheless;
- Past 3 years Tax Returns, Profit & Loss (P&L) and Balance Sheets
- Interim P&L, including balance sheet and a year-to-date comparison for the same period last year.
- Average value of inventory of saleable product
- Asset Register
- Lease details
2. Maximising Value
There are steps you can take to improve your business’s value.
Staff Training/Upskilling. Unless the prospective purchaser is asset stripping, they will want to continue with the current business and that means retaining your qualified, well-trained, organised employees. The more you can show how well your business runs, the more value they will see in your business.
Growth Plans. The more you make, the bigger your valuation and the more you can show you can make, even more value is added on the assumption of your growth. What this means is you really should think about growth plans even if you have no intention e.g. if you bought some land and were awarded planning permission for a block of flats, your piece of land would be worth more even if you had no intention of laying a single brick.
Perhaps, you have new products in the pipeline you have not brought to market, but everything is in place and you have the sales projections, the potential could add value regardless of whether the new owner chooses to go down that route.
If not growth, consider how you can improve efficiencies. Your Net Profit may have been 10% last year but if you can show how your cost-cutting will lead to a 10% increase, the value of your business will grow too.
3. Your plans
A different direction. You are thinking about another opportunity and do not have the time to manage both. This could lead to a situation where you still keep a stake in your business but do not necessarily have to remain in it. If the business continues to prosper, you will reap rewards, if it begins to fail, your exposure is limited.
Quick Cash. Life has taken a turn (or there has been a pandemic) you need to liquidate fast but also worried about a fire sale. We can look to options that do not decimate the value of your business, this may include keeping a stake in it for you as long as your cash flow issues are erased.
Retirement. Whether you know who you would like to succeed you (family or employee) or whether you want to cash in your stake in the business, we can look at the best possible option. We know the importance of a smooth transition, maintaining business continuity, and preserving your business legacy and reputation.
What if circumstances change? If you r business starts to trend down, the longer you wait, the lower the valuation. Nobody knows what the future holds. Just ask any company owner at the start of 2020. Timing is key and you need to have a clear strategy of when you plan to exit.