Steven Mugglestone

The more I learn, the less I know

How to maximise the value of your business, the good, the bad and the downright ugly:

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Selling a business is a long and difficult process and it is not something that many business owners do time and time again.  It is, therefore important to get things right and treat the sale of a business as one of the most important decisions that a business owner can make.  In today’s market of ever-increasing complexity and competition, there are many hurdles upon which the deal may fall. Getting the business ready for sale, systemised, streamlined and attractive beforehand is essential.  Whilst this blog is about that, the points raised are also central to improving a business now and for the future, irrespective of a future sale.

Here are some tips, therefore for avoiding potential threats to your sale, the good, the bad and the downright ugly.

1)      The Good: effective reward plan
People almost always will represent a significant proportion of the value of the business.  Your team, therefore, needs to be encouraged, inspired and on board.  You need to have smart reward strategies in order to make sure that they are tied in and have a stake in maximising the value of the business. It is also important to get all staff pulling in same direction so it is worth reviewing your reward strategies or incentive and retention plans. This can be a sound strategy since a future purchaser would be effectively paying the cost of the incentivisation. It goes without saying that this needs to concentrate on retaining key people and developing the rising stars, who are the future of the business’ success.

The bad: lack of internal support for the deal
Morale often decreases with uncertainty about the future of a business, poor morale and suspicion about future plans may cause high staff turnover and low morale, which in turn does not look attractive to potential purchasers.

The ugly: downright negativity
Negative morale, negative attitude and a team who do not understand or care about the current and future direction of the business will always show themselves, if they are there, to anyone carrying out a review of the business.  Many business reviews will carry out commercial due diligence, speaking to the current and sometime ex-staff.  Skeletons in closets, bad practices and bad attitudes will soon come to the fore and any potential deal will be scuppered.

2)  The good: an action plan
This really helps you and any potential buyers see your focus, so build a clear set of strategic goals and fully identify your critical success factors. Formulate an action plan and put in place robust delivery processes to make sure the company is performing at its best for yourself and future potential buyers.

The bad: lack of clear focus
Any buyer will be looking for a business that has a clear strategy in place for the future; and one that has been able to improve the business performance into a competitive advantage within the market. A buyer will be looking at whether a business has got a clear focus.

The ugly: day to day planning and the business owner working in and not on the business
It is said over and over again.  Work on your business and not in it.  Any business that requires the owner to drive the sales, negotiate the supplies, control the cash and make the tea on a daily basis will not be an attractive proposition to any potential buyer.  It is neither a system to improve your business if you are not selling.  You need to sort it out and get a plan.

3) The good: a well thought out succession plan
The same as having a clear strategic plan will mean that the business owner will begin handing over responsibility to others to show potential buyers that knowledge will remain. The maximum value of a business will be reached when the business owner can work out the door and not return, safe in the knowledge that the business will continue successfully without them.  It is important, therefore to build a competent level of management early on and ensure that there are no weak links in the key strategic positions. To aid this, you should carry out a full due diligence assessment on all management and staff to show the levels of capability in the business

The bad: all the relationships in one basket
For many businesses, the outgoing owner will be totally linked to its past successes, in many cases having built it up from scratch, winning contracts and managing strategy and performance. Relationships with customers and suppliers needs to be handed over.

The ugly: there is no standalone business
At the extreme, there is not really a standalone business as the owner is key to every relationship.  If the fall ill, the business will struggle, if they leave, the business will fail.

4) The good: commercial due diligence
Carry out commercial due diligence test, a test of business areas, not just financial, such as environmental, health and safety issues and team reviews. When preparing for due diligence, attempt to identify the most important key performance indicators (KPIs) which the potential purchaser will use to value the business during due diligence. For issues that arise after a potential buyer is interested, it may be helpful for them to see a timetable of when corrective actions will be implemented.

The bad: untested business processes
If you leave it too late to run a business health check on your procedures this may leave buyers feeling there is not enough time to make the necessary improvements around any serious issues raised by the buyer to negotiate a reduced price.

The ugly: unknown and weak business processes
If improvements are needed, the business is either not operating as efficiently as it could be or it could be facing serious risk issues.  Uncovered by third parties may mean fines, prosecution and a serious dent to the reputation of the business, which may prove disastrous.

5) The good: a well structure tax plan
Always talk to a tax adviser and this is even more important if you are considering selling your business as they can help you navigate the sale process, make sure you can take advantage of any planning and advise on the best time to sell.  They will be able to help you understand what you ultimately realised from the deal.

The bad: lack of tax planning
It is not all about the buyers, sometimes the seller can cause a deal to fail.  Sometimes a lack of planning with the sale at this time will trigger a potentially huge tax bill for the buyer and they will not go ahead.

The ugly: It’s too late
Deal done, but you find out that stamp duty, VAT, income tax on bonuses, valuation, redundancies etc, etc, etc were not considered and calculated before-hand.  Too late and a big tax bill looms.

Many of the points above are as relevant to a business who are not selling in the near as to those that are.  The advice is about how to improve the value of your business, now and in the future.  The key to all business success and in particular in safely negotiating the difficult path of a sale lies in acting early and responding to any issues quickly. As experienced business professionals, finance directors and accountants, we have helped many business owners improve their businesses now and at the time of sale and we look forward to helping many more and sharing our experiences and knowledge with them.

Steven Mugglestone BA FCA,
Finance Director Services

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Written by Steven Mugglestone

September 26, 2012 at 10:58 am

One Response

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  1. […] appropriate training, experience and hand-over and exit also required appropriate consideration (How to maximise the value of your business, the good, the bad and the downright ugly).  These areas need time and consideration and many of the issues will ensure that the business […]

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