Maximising Value Prior to Selling Your Business: Strategies for Success
posted 30th August 2023
It doesn't matter which exit route you decide to take to sell your business, you want to maximise the value of your business prior to selling, so you can harvest the best return from the years of investment you've made to your business.
The obvious first step is to find out how much your business is worth. But this figure doesn't necessarily reflect the true value of your business. Moreover, you can devise a strategy to increase its value by following a 3-year or 5-year plan.
A well-executed strategy can lead to a higher sale price and a smoother transaction process. Here are some key strategies to consider when aiming to maximize the value of your business before selling:
Prepare Financial Statements and Records
Clear and accurate financial statements are essential for potential buyers to assess the health and profitability of your business.
Before listing your business for sale, ensure that your financial records are well-organized, up-to-date, and transparent. This includes income statements, balance sheets, cash flow statements, and tax records. They are one of the most important pieces of information a buyer will receive about your business and can make or break the sale.
A professional accountant can assist in preparing these documents and ensuring they reflect the true financial condition of your business. Plus, an accurate and efficient accounting process can help get the deal done faster. High-quality financial forecasting is also essential when preparing your business for sale, and creating a strong, detailed 5-year plan.
Conducting a Reverse DD & FDD
Buyers are often willing to pay a premium for businesses with consistent and growing earnings. Before you reach the point of sale, as soon as you are able, realign strategies that can enhance your company's profitability. This might involve cutting unnecessary expenses, optimising your pricing strategy, increasing sales efforts, and improving operational efficiency. Demonstrating a strong track record of increasing profits can make your business more attractive to potential buyers.
Reverse Financial Due Diligence can also be beneficial. This is a type of audit that can help you discover issues that may have flown under the radar and are unresolved. As a business looking to sell, the acquiring company will carry out due diligence as part of the sale process. Reverse due diligence is the same process applied to yourself - allowing you to uncover anything that could pose a risk to your business or the negotiation of the sale. Legal experts who specialise in corporate law are invaluable in this process, as they can provide an objective assessment of the current position of your business, and address any areas where your business may be exposed to risk.
Strengthen Intellectual Property and Assets
Intellectual property (IP) and valuable assets can significantly enhance the value of your business. This includes patents, trademarks, copyrights, proprietary software, and other valuable intangible assets. If your business has a unique IP, make sure it's properly protected and documented.
One way to protect your IP is with Intellectual Property Insurance. While it may not be suitable for all businesses, it does provide benefits such as:
- Protecting your cash flow.
- Providing protection against potential infringes on your copyright.
- Improving your negotiating position.
- Potentially allowing your IP to be used as collateral and further maximise the value of your business.
Combined with the knowledge and experience of a commercial legal team that has expertise in managing the potential legal risks to your business while protecting your IP, Intellectual Property Insurance is the first step in strengthening your intellectual property.
Experts in commercial law can also help protect your business' tangible assets such as equipment, real estate, and inventory, in addition to less tangible assets like your client contracts and Ts & Cs. It is equally important for all these assets to be well-maintained and accounted for.
Showcase Growth Potential
Prospective buyers are often interested in businesses with growth potential, and synergy realisation is a crucial step of the post-merger integration process that showcases the growth potential of your business. A synergy realisation plan illustrates the value potential of the newly merged entity, and normally involves:
- Creating clear objectives surrounding operational improvements and revenue enhancements.
- Developing detailed action plans for each initiative and objectives.
- Assigning ownership of each initiative to a certain team or individual.
- Establishing a monitoring and reporting process.
To really sell the growth potential of your business to an investor, you should identify and highlight areas where your business can expand, innovate, or tap into new markets. This might involve discussing new product or service offerings, geographic expansion opportunities, or untapped customer segments.
A well-articulated growth plan created with the help of an accountancy team that can support the growth of your business can make your business more appealing to buyers who see the potential for future returns on their investment.
Clean Up Legal and Compliance Issues
Legal and compliance issues can be major red flags for potential buyers. To avoid scaring away possible investors, you should conduct a thorough review of your business's legal documentation, contracts, permits, and licenses to ensure everything is in order, and address any pending litigation or potential liabilities proactively.
While this is a daunting and complex process, our multidisciplinary legal team can support you every step of the way, from negotiation to carrying out legal due diligence.
It's worth it so your business can boast a clean legal slate which gives buyers confidence in the stability of the business they are acquiring.
Lean on the experts
Selling a business is a complex process that involves legal, financial, and operational considerations. Engage experienced professionals such as business brokers, accountants, lawyers, and valuation experts to guide you through the process and get your sale over the finish line. Their expertise can help you navigate potential pitfalls and ensure that you're making informed decisions to maximise the value of your business.
While you need an efficient, knowledgeable team of financial and legal experts behind you to help you successfully sell your business, this often means working with multiple firms at once. This can quickly get overwhelming.
But a multidisciplinary approach like that offered by GS Verde means you only have to go to one place to conduct due diligence on your business, receive advice on how to illustrate its growth potential, and get the word out there to their extensive buyer pool that you are looking to sell your business.
Expertise
All the required expertise you need to sell the business is provided by us - helping to add value to your existing management team.
With finance, communications, tax and legal advisers acting as one team, you have all the advice needed to get the deal done.
Reach
We span the entire business sales spectrum, with access to considerable pools of buyers as well as extensive marketplaces of acquisitive parties.
By using our Group, you can be sure that no stone would be unturned, and no opportunities missed.
Saves you time
Using one team removes the need to update several advisors at a time and reduces the chance of delays or anybody 'dropping the ball'.
Commerciality
We understand our clients needs and are specialists in corporate transactions. Knowing what is important to you from start to finish prevents unforeseen issues or delays.
Reduce risk
We take a holistic view of the whole process, identifying areas that could cause a deal to stall or abort, and pro-actively look to resolve them.
Maximising the value of your business prior to selling requires careful planning, strategic execution, and attention to detail. By focusing on financial transparency, operational excellence, growth potential, and presenting a compelling case to potential buyers, you can position your business to command a higher sale price and attract serious interest. GS Verde's multidisciplinary approach can help you successfully implement all these strategies by providing end-to-end support from corporate finance advice to legal compliance.
Remember, selling a business is a significant endeavour, and seeking professional guidance can be instrumental in achieving a successful and profitable sale.
For more information and guidance, visit our 'Sell a business' page, or learn more about other types of business sale such as Employee Ownership or Private Equity.
Contact GS Verde's multidiscipline team to find out more about the wider services needed to achieve a successful business sale from end to end.