Maximising the Value on Sale of Your Business: The Reality Check You Need

21 December 2023

Building a Business, Selling a Business, Structuring a Business

As a business owner, you’ve likely nurtured your venture from its inception, pouring in countless hours, resources and dedication.

Naturally, when the time comes to sell your business you have a certain expectation of its worth.

Yet, for many owners, a rude awakening awaits.

The market doesn’t always reflect the value they believe their business has.

In fact, many business owners face the grim reality of not being able to sell their businesses at all.

Some end up closing down, while others give away their life’s work for a fraction of its worth, sometimes to employees or competitors.

The root of this disappointment often lies in a few common oversights.

The Big Price Tag Fallacy

A common notion is that a larger business would naturally fetch a larger price.

While there’s some truth to this, the complexity of selling a larger business also increases.

As the price tag of your business grows, so does the list of potential buyers shrink.

Think about it: how many people or companies are in the market to buy a multimillion-dollar business versus a smaller venture?

Smaller businesses often appeal to a larger pool of buyers, be it first-time entrepreneurs, those looking to diversify or individuals looking for a career switch.

As a result, small businesses can often sell faster and at more competitive prices, especially if they are positioned correctly in the market.

Not Prepping for the Sale

When considering the sale of your business, it’s vital to ensure that everything is in prime condition to present to potential buyers.

This doesn’t just mean having your finances in order and ensuring contracts are secured, but it extends to the very core of how your business operates.

Building a Strong Management Team: If you’re aiming for a significant sale, one of the most critical assets you can have is a competent management team. This team can be the difference between a prospective buyer seeing your business as a turnkey operation or a venture riddled with challenges. A strong management team signals that the company has depth, can survive transitional periods and is set up for future growth. Buyers are more likely to pay a premium for businesses where they believe the team in place can drive continued success.
Reducing Owner Dependence: A business heavily reliant on its owner is risky for potential buyers. What happens to the company once the owner, who might be the primary salesperson, the main contact for key clients or the only one who understands certain processes, leaves? For a business to fetch its desired value, it needs to function effectively without the owner. This might mean training other team members, documenting processes or even shifting client relationships. A buyer will pay more for a business they believe won’t collapse in the owner’s absence.

An unprepared business is like an unpolished diamond – the potential is there, but buyers might not see it.

Buyers seek clarity, transparency and assurance that they’re getting value for their money.

Investing in strengthening the business’s foundational elements, such as its management team and operational independence, can be the key to unlocking its true value in a sale.

The Emotional Quotient

Many business owners have an emotional attachment to their businesses.

It’s their baby, nurtured from inception to its current state.

This attachment can often cloud judgment when setting a price, leading to an overvaluation.

It’s essential to separate personal feelings from the business sale process.

Engaging professionals like business brokers or valuation experts can provide an unbiased assessment of what the business is truly worth in the current market.

Begin with the End in Mind

As Stephen Covey once said, “Begin with the end in mind.”

It’s a principle that holds especially true for business owners.

When you start or grow your business, it’s always wise to have an exit strategy.

By understanding from the outset what you want to achieve when it’s time to exit, you can make strategic decisions that not only bolster your business’s present value but make it more attractive to potential buyers in the future.

To Conclude

Selling a business is no easy feat.

While many challenges are bound to arise, proper preparation can help alleviate some of these hurdles.

Business owners should keep the end goal in sight, prepare their businesses for a smooth transition and set realistic expectations based on market conditions and business health.

Remember, it’s not just about selling, but maximising the value on the sale of your business.

Assistance with selling a business

At Friend & Grant we have been in business for over 30 years and during this time have helped countless businesses to set up and grow.

Now increasingly we are seeing our clients reach maturity and many business owners are looking to realise their lifetime’s work.

We can help you with the process of building your business ready for sale, with business valuations, sales negotiations, due diligence on the sale and the business and tax advice centred around the sale.

We can advise you whether you are looking at a third-party sale, a management buyout or buy in, passing the business on to the next generation or simply winding up the business.

If you need further information on selling or buying a business please contact us and book your discovery meeting.