Having your business valued for sale
What is your business worth now? What drives value in a business like yours?
What reduces value? Why do you need to value your business? How much money do you need? How long will you live and need to provide for yourself and your spouse/family?
There’s a lot to think about. And a lot to take in – more than many business owners realise when they start the process.
Many people think that taking the decision to sell their business is the hardest part. Not so…. certainly that initial decision can be tough but from our experience working with hundreds of business owners over the years, one of the most difficult things to deal with is often the process of having your business valued. Whether the valuation is the basis for a sale, to raise finance, acquire a new business, for merger purposes, to float your company or bring in or divest yourself of partners, someone with a calculator is going to assign a cold, hard number to your creation – your brainchild, your staff, your designs, your intellectual property, your offices, your assets – in effect, your whole business world. That, for many, is when the realities sink in.
The task now is to make sure you have done all the right things to make that cold, hard number the best it could be for your business, to realise the optimum value for you, your investors and shareholders.
The KLO specialists are expert at helping company owners obtain the best valuations in the context of your expectations and requirements. Examining the market, your particular sector, your business situation and the wider economic factors, we will help identify the range of valuations that can be achieved.
Achieving premium valuations and reducing risk
The factors in your business operation and strategy that can influence a premium valuation and reduce risk for a purchaser include:
Size – simply put, larger businesses attract higher valuations
Strong historical financial performance and projections. Remember that every pound invested or spent and not fully recovered in the two years prior to selling your company WILL REDUCE the company’s valuation.
A recognisable brand in your chosen sector, reinforced by a marketing programme which regularly delivers new customers or new prospects
Having intellectual property rights (IPR) or technology that is protected by patent will enhance the valuation.
A business operating in a growing market will attract a higher valuation than a similar company in market that is considered flat or declining; for example, technology related sectors tend to attract higher valuations
Having a blue-chip customer base compared with a base majoring on sales to smaller companies
Having a wide spread of loyal repeat customers attracts higher valuation than companies dependent on a small number of larger companies or always having to generate new customers. Retaining a wider base of customers is lower-cost and lower-risk than attracting new customers.
Having a secure contracted income stream will attract a higher valuation than a business which has to generate its income continually, even if the customers are loyal and regular. The longer the contracted periods, the higher the valuation.
A competent and proven management team will attract a higher valuation than a business which has too high a reliance on exiting owners
High levels of relevant skills and experience, technical or process related.
A satisfied and motivated workforce with appropriate lock-in of key staff, via a benefits programme possibly including an HMRC approved share scheme, may not attract a higher valuation per se but it will be important to underpinning a valuation.
From the buyer perspective, you reduce risk primarily through being able to demonstrate
- Recurring revenues
- Consistent historic results
- Well-defined and documented systems, processes and procedures
- Quality standards and accreditations where feasible
- A proven, experienced management team.