For anyone unfamiliar with British understatement, “How much?!” is a rhetorical question used to indicate that the buyer hasn’t totally agreed with the pricing of an item for sale.
The problem is that pricing and valuation are tricky things to get right, especially with large assets. An old saying goes that the “price” is the amount someone is prepared to pay for an asset.
Which is why, as a business owner, the best thing you can do is prepare your business in such a way as to anticipate the future due diligence. Then you can supply overwhelming evidence that your valuation is accurate.
Selling a business is not like selling a house. Almost anyone can live in a house; however not everyone can run your business, or borrow the money they need to try (……….unless you make it possible, through building structures and systems into the organisation).
Typically, any buyer needs to borrow money in order to buy a business.
Access to other people’s money requires the lender do their due diligence as well as the buyer. All of a sudden there are two sets of people scrutinising your business asset for the security needed to put their money into your company.
It’s worth noting that a valuation is necessary even if you wish to pass on a business to a relative. Prudence (and the Tax man) demand that you need a valuation at the point of exchange.
As business owners, the best way to reduce the uncertainty around valuation, and to widen the field of possible buyers, is to build and structure your organisation in such a way that the value is clear.
(A well-run business also happens to be a fantastic way of reducing stress in the years that you own the company - but sometimes business owners are too busy to realise this).
Trying to build this structure into a business in the months before any proposed sale is difficult. I know because I have tried. In order to benefit from this effort; and in order for buyers and their financiers to be persuaded, there needs to be at least one year of financial results illustrating the effect of this strategic planning. It’s never too early to start work on justifying your valuation.
A good place to start thinking about this process is Armathwaite Hall in the Lake District on 18th and 19th of May 2017. Armstrong Watson will host fifty business owners and leaders for two days of intensive activity to build value into your business.
We’re so confident that you’ll find this event useful that, if you don’t secure value for your time, there’s a money-back guarantee. Get in touch and secure your place today!
