For this reason, a business evaluator may be reluctant to provide a specific figure, preferring instead to provide an indicative range of values, but what are the fundamentals that a business needs to get right in order to not only become saleable, but attractive enough to warrant a value at the top of, or even beyond, the indicative range?
Having assisted many clients over the years as they deal with commercial, financial and legal due diligence, we at UHY have developed a pretty keen sense of what can drive value if done well (plus what can destroy value if done badly). These factors essentially fall under four broad headings which are explained below with some examples:
Strategic
A business will score well with a documented business plan explaining their competitive advantage, their competitive environment, their channels to market, and the product/service pipeline. The document should also have a future focussed profit and cash generation dimension. The purpose here is to communicate a high quality stream (or streams) of earnings.
Operational
A buyer will wish to understand and verify your processes for making sales, the way products and/or services are delivered to your customers, where your resources come from, how quality is promoted and maintained, the way in which technology is utilised and leveraged, and to be able to assess the risks associated with these areas.
Financial
A business should be able to stand full square behind its annual and interim results and ensure its practices and policies are in keeping with industry standards and reporting frameworks. A risk averse attitude to tax planning & mitigation, and a solid compliance track record tend to be helpful in this context.
Cultural
Now widely accepted to be as important, if not more important, than strategy. A toxic culture, or one that doesn’t chime with a company’s strategy is highly likely to doom even the mostly coherent strategy to failure, meaning the two things should be developed in tandem. Aspects such as work/life balance, clearly defined roles & responsibilities and rules governing the way people treat each other should be both well communicated and lived.
So, rather more involved here than identifying an EBITDA number and attaching a multiple to it, which explains why many owners prefer to commission their own vendor due diligence (friendly fire, if you will), so that gaps can be identified and filled before a business is taken to market. If you would like to discuss your preparedness for a sale, or exit planning in general, please get in touch with your normal UHY contact or one of our corporate finance specialists across the country.
The next step
If you have any questions regarding this insight, please contact James Price.
