10. Building business value in the run-up to exit

There are many motivations behind setting up a business and in many cases the personal wealth of the owner-manager is tied up in the business, often for a long period of time.

If the financial investment made by the business owner is to be recouped and hopefully significantly increased, careful consideration needs to be given to ensure business value is maximised.

Based on our experience of helping many owner-managers exit their businesses, here are six things that we think are critical when looking to build business value:

1. Planning makes perfect

Although there are a number of different exit strategies that a business owner can pursue, each one requires planning well in advance in order to maximise the sale price.

When seeking to exit, it is important that the day to day or ‘business as usual’ operations are shielded from the planning of the sale. Doing this effectively will ensure that current performance is maintained and the business does not lose momentum leading up to exit.

2. Enlist experts

Maximising the sale value of the business at exit is a key priority for the majority of, if not all, business owners. Enlisting the support of experienced professionals including a Finance Director, will help guide you through the process and help improve the financial position of the business.

3. Appoint your ‘deal team’

Although a Finance Director can help to boost the sale value of the business, there are many more professional advisors whose input is required in order to ensure a smooth transaction. Lawyers, bankers, brokers and accountants may be required to handle different aspects of the sale, so it’s important to pick a ‘deal team’ that you can trust will act in your best interests. Having the right Finance Director will help choreograph the various advisers to maximise business value.

4. Diligence where it’s due

Buyers will want to closely examine every aspect of your business and it’s therefore important to ensure that all financial information; profit and loss, balance sheet, cash flow projections as well as contracts and other commercial information is accurate, up to date and in one place. Having a member of your senior team dedicated to this can be the difference between it happening and not; the risk of which could be giving away too much value at the time of sale or the buyer walking away completely.

5. The time is now

Although a buyer will be focussing on the future value of the business, it’s important for you as the owner, and your wider ‘deal team’ to understand the key current aspects of the business which could impact on this future value. One off, exceptional transactions which may not re-occur, or non-operational items which may not continue with different owners (car leases are one such example), need to be highlighted as future cash projections will take these things into account.

6. Cash is king, but people need to be treated like royalty too

Whilst maximising cash flow and profit are critical parts of an exit strategy for owners looking to achieve the best possible sale price, so too is the need to understand how to minimise the possible risk and disruption post sale for both the buyer, and those members of staff who will be transferring with the business.

People are often the most important asset that a business has – as part of the due diligence process, buyers will be seeking to understand who the key people are and what they contribute to the business. These key people need to stay motivated and if possible, understand what the exit means for their future. Many buyers will be looking for stability, even if only for the short term, so reviewing how to achieve this with your senior team and professional advisors is critical.

With the backdrop of an improving economy, we expect mergers and acquisition activity to increase as we head into 2014. By taking the time to put a robust exit strategy in place, owner-managers can realise the maximum value possible from their business when the time comes to sell.

To find out how to build business value in anticipation of an exit, or if you would like to discuss any of the topics covered above, please contact us through the Tectona website or call Mark Nicholls on 07818 407061.

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