There needs to be a clear understanding of exactly what assets are required to run the business. This includes an appreciation of what is needed to maintain those assets and how well utilized (i.e. what revenue and profit you can make from) each of those assets are.

We look to analyse and understand:

• Plant and equipment
• Vehicle fleet
• Other essential business assets – e.g. systems and intangible assets
• Surplus assets
• Personal assets
• Working capital (money tied up in debtors, creditors and stock)
• Market vs. replacement vs book values
• Repairs and maintenance and capital expenditure

I am often asked – “what is a good multiple for my business” or “what multiples are people paying for similar businesses?" This is a relatively general question and usually can only be answered with a “general” answer. 

In reality, the real answer can be nuanced when a detailed valuation of the business is completed. Yes, you will often have a starting point where a relatively standard profit multiple is used – for example, it could be in the 3 to 4 times range (or not!).

However, the real question is what the individual circumstances of the business are and how the business will be perceived by the outside world? There will be views that your business may have increased risk compared to industry peers (and therefore a multiple might apply) or it might be on a growth curve and in a desirable industry (and justify a higher multiple). To get a meaningful answer requires detailed analysis of the business concerned, in addition to current market experience and insight. 

We look to analyse and understand:

• Current circumstances of the business
• Comparability to other businesses within the same or adjacent industries / categories
• Available benchmark data for the sale of similar businesses
• Comparability to prior transactions we have been involved in or are aware of
• What other valuation methodologies may be appropriate (as opposed to applying a multiple to earnings)

There are often opportunities to obtain a higher value for a business and these should not be missed. Value could be increased by fully recognizing strategic opportunities available to the business and / or recognizing how to maximize the sale process.

We look to analyse and understand:

• Current circumstances of the business
• Opportunities for step changes of the business and what is required to achieve these (resources, funding, owner time and commitment etc.)
• Who might find these opportunities attractive and would be willing to invest
• Opportunities to target strategic partners / purchasers that would optimize a sale process

In our experience, Owners will have a bottom line on how much time and resource they are prepared to commit to their business. Understanding the commitment of an Owner helps to determine what can be done to fully leverage the potential value of a business.

For those business owners who have more time to achieve a great outcome, it makes sense to understand how a higher sale value may be gained by “readying” the business for sale first.

To achieve this “Future Value”, some effort and time will be required to make changes to the business to make it more attractive to buyers in the future. For more substantial increases in value this effort will typically focus on allowing the business enough time to achieve significant milestones to better demonstrate the full potential, and therefore value, of the business. For example, achieving new sales and / or reaching new markets, which helps create a ‘step-change’ in business value.

Gains can also be achieved from more routine enhancements such as improving systems and documentation or paying down debt. For example, it might make sense to clarify terms of trade with customers and suppliers – ideally through contract arrangements. There might also be beneficial improvements from ensuring quality documentation exists for key areas such as employees, internal processes and quality control. Often these improvements will help preserve business value and / or make the business more ‘saleable’ as opposed to increase business value outright. 

Again, an experienced business broker will be able to pinpoint where and how these changes should be applied to achieve the maximum price for future market conditions. 

Once understood, the choice is then over to you as the Owner as to whether you sell your business now or make the investment of time and money to strive for a higher sale value over time.