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What is your business really worth?
According to recent research, the majority of business owners nominate a “trade sale” of their business as their preferred and most likely succession planning exit option. With record numbers of business owners thinking about selling many will be disappointed when the offer they receive is well below their expectations.Valuing your business is usually the first step in developing an effective plan for sale. Valuing your business also provides you key information including:
• Current value
• Risk and value drivers
• How performance (profit, cash flow, risk etc) can be improved
• Potential increase in value
Case Study
Andrea 62 owns a successful retail business and is thinking of selling the business, expecting to achieve a sale price of around $1,000,000. Andrea has no real basis for this price, which if she was to achieve she would be able to comfortably fund her retirement. Andrea’s Accountant has recently valued her business and determined the current value to be $550,000 substantially lower than her anticipated sale price.
Andrea has a couple of choices open to her:
1. Put the business on the market and try and sell and achieve a sale price of $1,000,0002. Defer the sale and work on improving performance and increasing business value.
In valuing the business Andrea’s Accountant was able to show her not only how the business’ profit and cash flow performance impacted value but also how her non-financial risk and value drivers were having a negative impact on value. Areas such as industry risk, growth, benchmarks, business risks, competition, customer and market demand, staff and owner’s level of involvement in the business and succession and estate planning matters were all assessed and highlighted a number of issues that needed work.
Andrea decided that with the help of her Accountant she could develop a plan focused on growth and performance improvement. The valuation her Accountant completed identified a number of key areas where Andrea was confident she could achieve some quick wins which would immediately improve her business performance and value including:
• improving stock management;
• negotiating better supplier arrangements;
• expanding high value product lines;
• offering incentives to staff.
Andrea now has a clear plan on what she needs to do to increase the value of her business and achieve her desired sale price. Her Accountant is working actively with her regularly monitoring and measuring performance and the impact of change and Andrea is well on the way to positioning herself for sale.
