This is a question often posed by owners contemplating the sale of their business. The answer lies in whether what they are able to achieve in the next 2 to 3 years will actually add value compared to what they could achieve were they to put the business on the market for sale now.
There are a number of factors which can restrict the sellability of a business, for example:
- lack of service contracts,
- dependence on the owner manager, or
- poor financial controls and management accounts.
Regardless of the turnover and profitability of a company, these factors reduce the number of potentially interested buyers and often lead to the company not selling at all.
In this case, it is certainly worth taking the time to address these issues, which can take a few years, particularly for the owner to extract themselves from the day to day running of the business and to delegate the key client relationship management to senior staff. The effect will be to dramatically increase the sellability and therefore value of the business, with less earn-out provisions in the deal.
On the flip side, we come across many companies which are already well run financially, without dependence on the owners, and with contracts in place. However, the valuation metrics do not reach the value that the business seller would like to achieve. The company will make a desirable acquisition and even attract a premium multiple of earnings, but the historic and forecast turnover and profitability of the company limits the value.
In this case, it is simply a matter of growing the scale of the business.
If the business has grown strongly year on year, i.e. by more than 20%, and the resource and capability exist within the company to continue growing at this rate, then it may be prudent to stay put until your desired value is achieved.
But what if recent performance has been steady? There may be that potential of a significant new contract around the corner, but will this happen? You may decide to give it your all for another 2 years to revitalise sales and grow the team, but how much time and money will this take?
In our view, this is when you should you sell your business and this it when we can help you achieve the valuation you are looking for.
In the sale of a business, the headline value is rarely paid 100% on completion, particularly with service sector businesses for sale. Whilst the buyer will want to mitigate for the risk of losing business on the transfer of ownership, this also represents an opportunity to share the upside of growing the business. Together with the resource, fresh ideas and expertise of a well-matched buyer, you can the grow the business to its full potential value.
We always negotiate deals where there is a good amount paid on completion, but there is always likely to be a period of time post sale of the company during which you will need to remain involved in the business. By selling now, you can achieve full value at the same time as securing your exit.
Please contact us for a free review to assess the full potential value of your business and how we can help you secure your future exit now.
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