What is your business worth?

Aspectus Financial Management

1st January 2019

News

Aspectus Financial Management

 By Jamie Gayton

Aspectus Finanacial Management

We look at three factors which could affect the value of your company, so you can address these and improve.

ONE of the biggest strengths your business has is the ability to put yourself in a customer's shoes and anticipate their needs. If you're wondering 'How much is my business worth?', imagine you don't own it and consider what you would pay. The future owner of your business is perhaps your most important customer. Every buyer will have slightly different objectives for purchase, but there are common drivers affecting the decisions of most and these will ultimately relate to the value of your company.

As well as looking at what positively impacts the value of your business, it's equally important to review the negative factors so you can address these and improve. Here we'll highlight the three that typically cause the most issues for business owners who are trying to sell. If you recognise any of these in your business, don't panic! Think of them as signposts for how to get your business into the best possible shape - so you can walk away knowing you've sold your business for the optimum price and got the best deal.

Dependency

Think about what fuels your business success. Do you have a product that's truly unique in the market? Perhaps your brand is considered the gold standard in your sector, or your reputation is Teflon-coated with years of major name endorsements. All these features can be bought with the business and are not likely to be dramatically affected by who owns it. However, if the fuel behind your business success is you, the business proposition starts to look less appealing to an outside buyer.

Cloning yourself may seem the only solution but rest assured you can circumvent this obstacle - with a bit of time. Evaluate the scope within the business to train current or future staff in your skill set and bridge the transition for your customers with events or meetings in which you can introduce them to your successor and retain their confidence in the business after your departure. Show your buyer you're taking these measures and they'll see greater value in buying your company.

Poor financial reporting

One of the first things any potential acquirer is going to ask about is your financials. Here, having adequate documentation in place is imperative in helping to achieve your best sale. Poor financial reporting will reduce the appeal of your business and deter a buyer. If you want to demonstrate the value of your company, make sure you can prove it by presenting up-to-date consistent sales reporting, management accounts, and statutory accounts.

If you can provide accurate forecasting enhanced by actual versus planned performance with actions, even better. All reporting should be accurate to the point that it can be challenged, defended and evidenced. Remember to use universal terminology rather than in-house acronyms so it can be clearly understood by all parties.

Unresolved litigation

Nobody wants employee disputes, ongoing customer complaints or PR nightmares but experienced business owners know they can come with the territory of even the most established brands. One well-known model of smartphone was going to be one of the best of recent years, but such claims were undermined by the tendency of its battery to catch fire on airplanes, prompting a massive recall and replace programme.

If you have a strong brand and your business is doing well then litigation or a serious issue won't necessarily mean you can't sell. What matters is that you can prove you've taken all the right steps to rectify and resolve any problems. Those interested in buying your business may not be deterred if you can show them any unresolved litigation is being managed and documented appropriately, hopefully covered by insurance. If you're working with legal advisors, risk management consultants or a PR agency, their expertise and advice should be called upon to allay the concerns of acquirers.

These are just a few of the factors that might affect the value of your business. If you're planning to sell your company, make sure you spend some time with a specialist. Give them the whole picture, especially if there are current/potential litigation or issues in your business. This will allow them to assess saleability, how much it's worth and the sale you could achieve if you address any aspects that might be reducing the overall value.

Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James's Place. This article originally appeared on the Entrepreneurs Hub website.

Aspectus Financial Management