Thinking of selling your business in the future? What is it worth?

Retirement? Change of circumstances? Nobody to take over? Time to exit?

What ever the circumstances, selling the business at some stage in the future will cross the mind of many business owners.

So what is your business worth? Is the loss of annual income worth the sale? How can you increase value?

These are all questions that will float around the brains of many business owners at some stage and many do not know the answers. Many have spend decades building their businesses but really do not have a plan to deal wit the time when they no longer wish to run or own their business.

One client I met recently was in exactly this position. He and his wife and had built the business over eighteen years and were starting to consider retirement. Here is our conversation:

SF: "What do you think it is worth?" 
Client: "around £3 million" 
SF: "ok, how have you reached that figure?"
Client: "well, eight years turnover is around £3million" 
SF: "and has anyone verified that value for you?"
Client: "no"
SF: So why do you think an 8x multiple of turnover is an acceptable basis for value? Are there other examples in your industry?
Client: "I don't know"
SF: "what is a buyer getting for his £3m?"
Client: "the company name, the clients, the vans, the staff, the stock and the website"
SF: "what is the value of the stock and the vehicles?"
Client: "hmm, around £70,000 to £80,000"
SF: "ok, so the buyer is getting the name, the website and the staff for £2,920,000?"
Client: Well.....yes"
SF: "ok, how much is the business making net per year?"
Client: "around £140,000 after everything"
SF: "what is the income from recurring contracts per year?"
Client: "nothing"

In reality this business may be worth between £400,000 to £600,000 today - if a buyer can be found.

I have met many clients who over-value their businesses as they often relate value to the effort they have put in over the years AND the potential value of the business in the future. Neither of these create value for a buyer. It sounds ruthless but its true. A buyer is not interested in the past efforts any more than he or she is interested in paying for the future that does not yet exist. They are interested in NOW.

If you aspire to selling your business in the future then you simply must get some advice as to what is it worth now and how you can create value in the future. A business that is designed to generate a healthy income for its owners may not be correctly designed for creating long-term value. Many business owners do not appreciate the value of their relationships with their clients and many businesses fail after the owners have retired or sold the business.

By talking to SalesFriend we can help you understand how to create the value that businesses want to buy. The vast majority of businesses that we meet are missing opportunities to create value with a few simple changes to their business plans. Here is a very simplistic but genuine recent example: A client had a business offering maintenance services on printing machines. In this business, a client without a contract who earns a profit of £50 per month would be worth only £150 of sale value, however if this client had agreed a 12 month contract then the value of this client would increase to £950 and more again if clients paid via Direct Debit.

As you can see it is often simple changes to trading terms can create a large increases in value. There is little to be lost by letting our team review your business and give you some advice and supporting numbers to help you grow value.

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