Get the preparations right first time to maximise the valuation of your business

You wouldn’t run a marathon without being properly prepared, which begs the question, why are we constantly coming across businesses clearly rushed to market without the necessary diligence to ensure a smooth process?

As a business owner, the worst thing you can do is rush into an exit process. Even if the exit is years away, if you know it’s coming, you need to start planning now. While the strategies below are not overnight fixes – they can take months or years to get right – my advice would be to start thinking about them sooner rather than later.

Know your risks

​Melanie Clark, Partner – Quantify Partners (Picture: Jonathan Addie)

Consider any areas you need to de-risk within your business. For example, customer or market concentration – this might be great for cash generation as a business owner but screams risk to a buyer. Take some time to diversify the business by adding new customers and/or markets to limit concentration risk. Can the business survive without you?

You might be ready to exit, but is the business ready? If your business can’t run smoothly without you while you go on holiday, exiting the business might be a challenge for you. To open up the potential buyer pool, invest time into building a strong second-tier management team who can take the business forward. Track the right metrics

Spend some time thinking about the type of metrics prospective buyers would want to see. It can be common that businesses do not track margin on a granular basis, whereas this is something that due diligence providers get very excited over! Implement a system of tracking margin by product, service line, customers etc. Good housekeeping

Make sure everything is neat and tidy from a legal perspective, for example if you operate under contracts, make sure they are all signed and up to date. After spending time preparing the business for sale, it’s important to ensure that when you go to market, the numbers align with the story and all the preparation you have done, leads to the highest valuation possible.

IM consistency

Take the time to make sure the business you are selling matches the story in the Information Memorandum – you can’t just add buzz words like ‘renewables’ and ‘clean energy’ if none of your revenue comes from this space – buyers will see through this straight away.

Be over diligent

When entering an exit process, don’t go into diligence with poor financial information. This will not only delay the process but also dent buyer confidence in the robustness of the numbers and systems, which can have a negative impact on valuation.

Consider a sustainable pipeline

Think about your pipeline – you might know that work is coming but a buyer needs to see clear evidence of agreements and assess how sustainable is your revenue. We often see forecasts presented that never turn into revenue – focus on genuine opportunities and work on converting these.

Use professionals

We’re biased on this one but it’s vital to use a well-respected corporate finance advisor. There are a lot of areas where a seller can easily lose value, particularly against an experienced buyer. Having someone knowledgeable in your corner will undoubtedly increase the value you receive for your business.

Last chance saloon

Remember, you are likely to only get one shot at this – if your sales process fails, it’s very hard to go back round the buyer pool again. Unless there is a completely new story or pivot, you will lose credibility and valuations will plummet. Our advice is, do the necessary diligence to get it right first time!

Melanie Clark, Partner – Quantify Partners