Everyone wants top dollar when it comes to selling their business.
This is understandable considering the business owner has often made a significant investment to achieve growth and success in their enterprise over many years.
But the value a potential buyer places on a business can vary quite significantly from the vendor’s expectations.
In the current environment, buyers are more risk averse than ever before and this is being reflected in increasingly rigorous due diligence.
How, therefore, as a vendor, can you ensure you’re maximising the potential value of your business, particularly in this buyer’s market?
There are several key areas during the sale process where, depending on how it’s handled, the value of the asset can be significantly eroded or maximised. They are:
Corporate and tax structures, governance, systems, (staff, customer and supplier) agreements and IP protection are all areas that require considerable attention well in advance of placing the business up for sale. A lack of clarity or security is a red flag to future problems or growth constraints which can scare off potential buyers or, at the very least, cause them to lower their offer price.
Poor quality of information will also affect a buyer’s perceived value of the business. Incomplete, inconsistent, unreliable, unexplained and unsubstantiated records are a sure way to a lower offer price.
A loss of focus by management in the running of the business, either in the lead up to a possible sale or during the process, can equate to a decline in the performance of the asset and its ultimate value. This is why it’s so vital to have the assistance of professional advisers from the early planning stages of the sale process so management can continue to focus on what they do best.
The actions of customers, suppliers and employees may also have a negative impact on value. Consistent and regular communications with these key stakeholders about the future of the business is important in explaining the process and avoiding price sensitive misinformation from circulating.
Buyer due diligence
The due diligence phase can be a time of potential price adjustments from inquiring parties. Vendors who are not prepared for the likely buyer queries that arise at this stage are doing themselves a major disservice. For example, an over-reliance on the current owner or a small number of key customers will raise serious questions about the sustainability of the business.
Values can fall at the final hurdle so having an experienced advisor in your corner to close the deal is vital. Procedures and mechanisms relating to purchase price adjustments may reduce realised value. This is also the time where resolution of outstanding legal or business issues and disputed points is required, so your corporate, tax and legal advisers all have a major role to play.