What’s Your Business Worth?
In the last article I wrote about the first step in our process (21 Steps) to assess the exit readiness of a business which was about capturing the desired goals and objectives for each of the owners as a way to define their desired outcomes that they are hoping to achieve with their exit plan.
In this article we describe the second step where we undertake a thorough fact-finding mission to fully analyse business and view the business through a buyer’s lens. We use a number of tools to explore every aspect so that we can identify strengths and areas to focus to achieve quick wins. There may be some priorities to address vulnerabilities.
As part of Step 2 we research the market to benchmark the business against other similar businesses that have been sold recently. Comparing a business with similar businesses gives you a good indication of how much work is required just to achieve the benchmark. An underperforming business will result in a lower valuation, so it’s good to get a benchmark at the beginning of the process.
One of the things that buyers will want to see is adjusted financial data to show how the business would perform (financially) if it were run by employees rather than owners.
The fact find will identify the risks and the opportunities to improve the business in terms of both financial and non-financial areas of performance. Buyers want to know that everything is as it should be for a business at a certain stage of development. It’s worth noting that one of the key areas for a business being attractive for a strategic acquisition is in terms of intangible assets. I’ll cover these in more detail in Step 8.
A key area of analysis is to scope the asset that you have to sell. Do you have a business, or do you simply have a job? I have seen a business where the owner was still essentially self-employed even though he employed 14 other people!
If you are clear about the starting point and what you want to achieve, then you can make a plan to bridge the gap for what needs to be achieved to achieve their goals. Often this is the first time that the owners have taken the time to stop and take the time to articulate their specific goals. It is not unusual for each of the owners to have different goals and aspirations for what they want to achieve in their business before they leave. It is also likely that they will have different timeframes that they are working to.
As we mentioned in the previous article if owners know what they’re moving into then they are more likely to be excited and motivated to move in that direction increasing the likelihood of a successful exit.
Now that we have a valuation and a comparison with best practice, and we also know the goals and outcomes that the owners are aiming for then we will know the size of the gap to be addressed by the implementation plan that will be created as part of Step 3. I’ll explore this further in the next article in the 21 Steps series.