Four ways to boost the value of your business in the run-up to a sale

Gregg Pendlington from DSW’s North West Corporate Finance team explains some tried and tested ways for owners to achieve maximum value.

selling your business

 The value of any business depends on what the buyer is prepared to pay – and even very similar companies can often achieve a different price. Aside from key considerations such as revenue and profitability, other less obvious factors can make a business more attractive to a buyer. Here are four ways that vendors can add value in preparation for selling your business.

  1. Succession plans

Owners need to start facilitating their succession at least a couple of years before looking to market. Often, they are reluctant to step back and let go, but if all the contact points and goodwill hinge on the person in control of the business, a buyer will quickly realise that and be wary of it.

Having that additional layer of management in place really does add value, as it gives the buyer confidence that the business will continue to thrive once the owner steps aside.

  1. Technology

It’s not only tech businesses that can benefit from technology. The right systems can transform most operations, for example, by enabling remote operatives to capture information on a mobile or tablet, directing them to the next job, removing the need to take the paperwork back to the office and linking directly to the finance function.

Automation cuts costs and reduces reliance on staff members, while the data from IT systems can provide insights to improve performance. A business that uses smart technology will be more efficient, more attractive and more valuable to a buyer than one that still relies on manual spreadsheets and is in need of digitisation.

  1. Infrastructure

When selling your business, having the appropriate functions in place – such as finance, IT, HR and recruitment – is a sign of a professional business and one of the factors that a buyer will look out for, along with solid corporate governance.

Even if a company makes high margins, if it lacks these functions, then it suggests it is outgrowing its infrastructure. A buyer might make allowances for the costs to put it right, and the multiple on which the price is based might be lower because it might not be considered a high-quality business.

The finance function is particularly important. It should go beyond the standard ‘year-end’ accounting to provide timely reporting and information about the underlying KPIs, enabling managers to analyse the ‘heartbeat’ of the business and identify key trends. Good financial information comforts a buyer that the business is being run correctly and that it’s not simply winging its way to success.

  1. Repeat business

Demonstrating ‘customer stickiness’ is one of the best ways to increase the value of a business. Ideally, customers will be locked in with contracts; however, buyers are looking for evidence of longevity – such as returning customers, recurring revenues and a repeat nature of business. Admittedly, companies might not have full control over this, but it is worth bearing in mind when deciding the mix of different work you aim to win.

A £500,000 one-off project may be more exciting and profitable than a £50,000 annual maintenance contract. However, big projects can be cyclical while in an economic downturn; the maintenance work will continue, especially if it is required to keep the firm running or comply with regulations. That continuity will be reflected in the value of the business.

selling your business

Gregg Pendlington, Partner

If you are looking for more advice on selling your business or are seeking to buy, please contact our Corporate Finance team.