The demand for good businesses continues to remain strong despite the current uncertain times. Trade buyers make acquisitions to grow their business and create scale. Valuations are holding up if you are wanting to sell your business in the near future.
In the article we look at the key actions which we at Dexterity Partners undertake as part of our Fit to Sell and Fit for the Future analysis. The following points are a sample of the areas in your business to consider prior to commencement of any sale process.
Differentiate yourself from your competitors
If you cannot differentiate your business from your competitors, you will not stand out and buyers will have no compelling reason to acquire. It will reduce the value. If you have a unique core competence; such as knowledge, or skills or intellectual property then you can create barriers to entry and generate a ‘need to acquire you” by competitors. This also helps to improve margins which increases the business value.
Create a clear business model
The need to be able to show that you have positioned your business to be able to consistently service customers with a fixed service, standard pricing matrix, service levels and quality product or service. This needs to be documented so that a new owner is confident it can continue to replicate it.
Data first: Facts not opinions
No matter how great your service, or how excellent your reputation, when it comes to selling your business, buyers are looking for future growth and profits. The more you can prove this with data, information, supportable forecasts and past evidence of actions that have succeed the greater the probability of completing a sale.
This needs to be collected at the very start of the process. The use of a virtual data room ensure a buyer’s due diligence and the Sale and Purchase agreement is quickly and smoothy completed.
Identify and prove your core competences
Core competences are the ability to use your resources to create excellent performance. These may be product quality, service levels, employee skills or unique product characteristics. Being able to show you can consistently deliver these, when your competitors cannot, will put you in position to attract a buyers’ attention.
People and a future team
The greatest barrier to selling a business is when the owner manger is the business. If a seller is not able to show that a management team is able to step into the shoes of a departing owner then it will significantly reduce the interest of any buyer and reduce the value placed on the business. This may result in a long term earn out period and no quick exit for a seller.
An acquirer wants to know who is going to deliver the future growth. It is the team, not the departing owner, who will have to deliver the future. If the owner is the key person in the business, it will be viewed as a risk. However, if a buyer can see that the business is driven by a quality team then this risk diminishes. In addition to being competent, your team needs to have the core capabilities to drive growth and stretch their capabilities going forward.
Put technology and processes at the centre of your business
Technology-driven solutions and its effective use underpins many companies’ performance and gives then competitive advantage. Increasingly, the due diligence is assessing a company’s process and technological capabilities, including interfaces, sales, finance, back office systems, manufacturing, and human resource applications.
Are these at the forefront and integrated, or are you trailing the market? A low technology business will not be as attractive to one that embraces technology and innovation.
Measuring performance
The analysis of the last few years’ historic profit to value businesses is only one part of a valuation. There is much greater focus on current performance and credible future forecasts. Creating dashboards and key performance indicators such as the cost per acquisition and lifetime values of clients.
Immediate real performance indicators are key in this assessment. Recurring revenue and a spread of customers is also important. Being able to demonstrate high levels of repeat trade from existing and new customers will push up the value of your business.
Summary
The above are just a few of the key factors that must be consider before commencing any sale process if a business is to achieve its optimal value.
Here at Dexterity Partners we have an experience team lead by Dr. Simon Brayshaw, which utilises his own extensive research as Warwick Business School and his own thesis which shows a pathway for owner manages as to how to create short term profit and long term value which is essential when considering the sale of a business.