There may be a number of factors that influence your decision to sell your business, what is important is finding the right price. This guide will highlight the approach that a prudent seller would take to increase the value of their business.
Valuing Your Company
The most commonly applied method to value companies is the multiples of earnings method, which values the return on investments. In reality, most purchasers buy businesses for the potential growth opportunities, which can be achieved through diversification, new client acquisition or geographic expansion. This allows the purchaser to consider how their resources and skills can improve the company. It is therefore imperative to encourage prospective buyers to value your company based on the potential growth opportunities, rather the return on investment.
Actively Sell Your Business
If you want to successfully sell your business, you need to take action. Sellers should commit considerable effort in the marketing and sale of the business. Marketing the sale will attract more prospective buyers, which will in turn create a competitive market, increasing demand in the business.
It is also important to avoid passivity in reaching out to potential buyers. Not every buyer will respond to your email, which will immediately reduce the number of competitive buyers. The best way to communicate directly with potential buyers is to phone them, this will allow you to keep as many in the picture as possible.
Finding The Perfect Buyer
On face value, it’s understandable to assume that your competitors will be lining up to purchase your business, as customers are often the greatest asset for companies. However, companies with a complimentary trade are likely to be more interested in purchasing your company. Companies that have a trade complimentary to your own don’t have products or services that compete with yours, they sit alongside yours allowing them to introduce both companies’ customer bases to a different range of products or services.
You should also consider looking for potential buyers overseas, no matter the size of the selling company. Overseas companies will often be willing to pay a premium price in order to gain access to an international market, but they will also have an influence over local buyers. If a local competitor worries that an international competitor is looking for a foothold in the UK and is going to muscle their way into the UK market by purchasing your company, the local competitor may be willing to pay a higher price to outbid the overseas competitor.
Finding the perfect buyer is difficult to achieve in practice, it is important to consider every potential buyer, and may potentially require a dedicated research team to find potential purchasers around the world.
Sell The Future Of Their Business, Not Your Past
What would you do with the business if time, money and resources weren’t an obstacle? Create a growth plan for your business, even if you don’t intend to grow the business. This helps to indicate where future growth can come from for the buyer. Make assumptions in your growth estimates, but keep them conservative and believable. If the buyer feels they don’t have the resources to grow the business considerably more than you can, then they aren’t the right buyer for your business. You should seek to sell your business to a company that can grow the business beyond what is currently possible.
Keep Your Options Open
The best way to increase the value of your business is to have a number of potential purchasers competing for your business. Having options influences the speed of the deal, the terms of the deal and the overall price of the deal.
If you have a limited number of potential purchasers, they may try to impose their valuation methods, however if you have more choice, you can feel comfortable that most buyer’s will be persuaded by the active competition to consider the future potential of the business.
Having a number of options also allows you to reject the first offer in the hopes of getting an improved second offer, as a seller you have the security of the other bids.
Instruct A Solicitor
When selling a business, it is invaluable to acquire the services of a solicitor. You will undoubtedly face legal hurdles that a solicitor can advise you upon and assist you with making the whole process run smoother.
To Recap
Selling your business doesn’t need to be difficult. You need to avoid being passive, and actively look for buyers as they are rarely looking to purchase. You need to find as many motivations for purchase as you can, and keep your options open in respect of prospective buyers.
Should you require any additional information in relation to Business Sales and Business Purchases matters then please get in touch at [email protected] or call us on 0330 127 8888 and our team will be more than happy to help.
