Unlocking value

The key to unlocking potential value in your business

People power

People are at the heart of every business and a strong second-tier management team is particularly important for increasing business value.

Building the right management team is the biggest value driver of them all. Ask yourself, “If I permanently left my business today, would it continue without me?” Building a management team long before your business actually needs one and long before you want to sell is key to maximising business value. You effectively need to make yourself redundant!

Your management team need to be able to make decisions without you and know what to do and how to do it. It’s your responsibility as a business owner to attract and retain the right management team in your business. Your next responsibility is to develop, inspire and motivate that team.

If YOU are the business, the company’s intrinsic value will suffer, so removing yourself from the day to day of your business and building a team to manage the day to day is essential.

To maximise the value of your business, you need to make yourself redundant. As an owner, you should ask yourself the question “If I walk away, can the business continue without me?”

Quality over quantity

The quality of a business’s earnings, profits and cashflow is defined by the profit multiple that a potential new owner is prepared to pay.

A well-thought-out approach to raising the profit multiple of the business can sometimes delay the satisfaction of shorter-term profits, but in the long-run you could see a big difference in the price a potential buyer is willing to pay.

Thinking about the quality of the profits is not only the preserve of those planning an exit; it’s just as valid if your motive is to build and run a business to be proud of. The earlier you start thinking about it and the less mature the business is, the better the outcome.

When buyers look at a business, they’re not concerned with the quantity of the profits, but the quality of your potential profit – in other words, the potential for repetition of those profits and the capability for the business to add to its own value.

The buyers perspective

Ultimately, your business is only worth what someone is willing to eventually pay for it. So, if you want to sell up at some point, you need to look at the company from a buyer's perspective.

Viewing your business from the perspective of the potential buyer is crucial in order to add value.

Will they see a business primed for growth, with achievable margins?
Is the current owner acting to solve potential issues now?

In fact, a buyer may have the expertise to release the company’s potential and add value in a way that the current management can’t.

Identifying issues in advance, and drawing up plans to correct them, will put the vendor in a stronger position and help them avoid surprises.

Seeing your business through the eyes of a buyer helps you to understand and correct any concerns that they may have and ultimately increase value.

Over dependency

If you are looking at what your business is worth, then putting all your eggs in one (or even a small number of baskets) is not wise. You need to consider whether your business is structured in such a way that it controls risk, or if its position is potentially precarious.

There are four main areas of dependency:

The business owner
Customers
Suppliers
Product / Service range

Potential for growth has a huge impact on business value, which is why it is vital to address any issues around over-dependency on the business owner, products/services, customers or suppliers sooner rather than later”