Looking to sell your business? Consider the art of value.
Many entrepreneurs try to determine the value of their business by using a multiple of their profit figure or a number they have in mind from the news of a similar sale. But when selling a business, non-financial factors also need to be considered.
What is the art of value?
The art of value is about determining both the financial and non-financial factors that affect the presentation of your business to prospective purchasers, which ultimately influences the outcome for you as the seller.
There are three key points to consider:
1. There’s no time like the present
To determine the most accurate value of your business, be sure to regularly monitor your revenue and profit lines, excluding any exceptional items such as ad hoc recruitment costs or one-off revenue contracts. You should present what the most recent figures imply on an annual run-rate basis, rather than sharing the figures from your statutory financial statements from the last year end, which could be six months old, or older! Take the guess work out of the equation for prospective purchasers.
2. What are your driving forces?
Value drivers differ depending on the type of business, so it is good to get a grasp of what yours are from the outset. These could include your business’ ability to scale, the geographical reach, or the robustness of technology, just to name a few. Knowing what your value drivers are will help you market your business at the right level and to the appropriate prospective purchasers. So when you are looking to sell your business, you should first look internally to establish what your value drivers are and then use this evaluation as the basis for communicating externally.
3. Value isn’t objective it’s subjective
Value is in the eye of the beholder, so it’s important to tailor your proposition to each prospective purchaser based on where they believe the value lies. You want the buyer to picture their future with your business in mind, so should relate your proposition to their current situation or existing portfolio to help them connect the dots. You could focus on the cost synergies, intellectual property or the ability to cross-sell to their existing customer base. What will trigger their desire to invest?
Value is as much of an art as it is a science and there are many more factors to consider in order to achieve the best outcome.