In my last article (‘Yield is everything: If the valuation you are given for your business sounds too good to be true..’) I promised to address this question. In a previous article (‘5 Buyer Hot Buttons – how to increase the value of your business prior to a sale’), I made some suggestions about shorter-term actions, but this piece is about some longer term steps best implemented anything up to 5 years out from the eventual sale. I think of this as genuine ‘Exit Planning’.
I’ll focus on 5 practical suggestions:
Personal Financial Planning: Although this will not increase the value of your business the information it provides will be invaluable. Good IFA’s can offer their higher net worth clients detailed scenario planning showing how the client’s financial resources match their lifestyle wants and needs into the future. This is a good place to start because it will help to answer the question of how much the business value component needs to be upon sale to meet your needs. We can help by providing a preliminary valuation of your business and suggestions on the steps to achieve the required valuation;
Organisation Planning: There are 2 components to this. The simpler one is to ensure the business has the appropriate paperwork/systems in place to ‘pass muster’ during due diligence (contracts of employment, HR policies etc). The longer term action, which will certainly impact value, is about the quality of the team that you will leave behind. This is considered extremely important to buyers – not only from the point of view of a smooth transition of ownership but also because good people will be perceived by buyers as a really positive feature of any acquisition. We recommend that you seek external advice from an HR professional to take an objective look at this area;
Driving the Top Line: The best way to increase business value is to increase the bottom line. One way to do this is to drive the top line. Bearing in mind that buyers should be valuing the business on the basis of future cash flows (or profits), having well thought out plans to grow the top line will ‘count’ even if, by the time of sale, it is only potential growth. Again, the best way to go about this is often to get some outside help. At present, the Government is keen to help and there is matched funding available for accredited marketing consultants.
Reducing Costs: The other way to drive profits and therefore value is to reduce costs. Once again, we recommend you bring in external expertise. Organisations such as Auditel offer to assist businesses in cost reduction and they will often do this work on a payment-by-results basis provided the cost area is large enough. The benefit of this kind of organisation is that they have specialists across a number of cost areas (logistics, energy, travel, print buying etc) who can bring a lot of knowledge, experience and economies of scale to the issue.
Tax Planning: Again this will not increase the value of the business but it may enable you to keep more of the proceeds! Speaking personally, I do not believe in aggressive tax planning and, in any case, it would seem that the Government has finally begun to get a grip on this. However, you should ask your tax advisers to cast an eye over the company ownership and corporate structure well in advance of a sale to ensure that you will qualify for Entrepreneur’s Relief. Issues they will want to check include shareholder/directors who do not work in the business, where freehold properties are owned, how long companies have been in existence.
At Anderson Shaw we are always happy to speak with business owners on a confidential, no-commitment basis, even if a sale is many years way so please do not hesitate to contact us. If you would like to find somebody to assist in any of the areas mentioned above we will do our best to help.