We regret that many of our conversations with business owners in the past year regarding how best to close down their businesses have been forced on owners by COVID disruption.

In this fact sheet we have laid out how to maximise your business value even if occasioned by lockdown, social distancing issues or other COVID related challenges.

How to salvage value if you are forced to sell

When you sell your business, it is easy to see that you should get something for business assets; whether they be property, plant, vehicles or other equipment.

Buyers will want to pay the lowest price and you will want to sell at the best possible price. Inevitably a deal may be struck at somewhere in between.

However, this can be just the tip of the iceberg. Your most valuable asset is likely to be goodwill, and this is rarely quantified in your accounts.

One way to define goodwill is the price a buyer would be willing to pay for the relationship with your customer base. This could be the value of existing contracts or hard-won, repeating sales to regular customers. You have done the hard work and invested in the conversion costs to win these relationships, and many buyers will be prepared to pay you something for this goodwill.

The problem is how much would they be prepared to pay?

Try and slow down a forced sale situation – as many in the leisure and hospitality trades have been obliged to consider recently – and take time to have your business goodwill valued as if it was a going concern. Although you may have run out of capital to take your business forwards there may be competitors with sufficient funds to make you a sensible offer.

Offer buyers ongoing participation to secure goodwill

Buyers will be wary of paying a reasonable price for a business if the present owner is not prepared to stay on for a period of time to ease existing customers into a lasting relationship with the new owners.

The speed and amount you receive as payment for your business may depend on this.

If you are not in a close-down or forced sale situation, there are a variety of exit strategies you could consider.

Exit strategies

  • Sale to a third party
  • Handing business to family members
  • Selling business to your employees – staff buyout
  • Gradual wind-down

The first three options are fairly self-explanatory. Each will require an arms-length valuation and a negotiated settlement: how quickly will you be paid and in what form will you be paid; e.g., will you be paid in cash or shares on signing a contract to sell or as a deposit and instalments?

If your business is a company, has cash reserves, no other assets and cannot be sold, there are a variety of tax planning options you could consider that may include withdrawing funds as say dividends over a number of years to supplement pensions. The gradual wind-down option.

What drivers will increase the value of your business?

If you are not in a forced sale situation, what drivers, indicators do you need to focus on to achieve a successful exit? The following list describes some of the key factors you could consider:

  • Having a strategic plan in place to grow your business.
  • Positive financial performance.
  • A history of adequate working capital and cash-flow management.
  • How does your business rate compared to competitors?
  • What are your unique selling points?
  • Has your business developed intellectual property?
  • Is the value of recurring or contracted work significant?
  • Is there reliance on key customers, suppliers or staff?
  • How easy will it be to reduce reliance on founder or shareholders?

Working on these areas, over time, will help you to maximise the value of your business.

As with all business planning, these factors need to be incorporated into your wider planning management; if possible as soon as you start to trade.

Planning your business exit – we can help

Without a doubt, planning is absolutely vital if you want to maximise the value you can extract from your business when it’s time for you to exit.

Hopefully, you will have considered and worked on the issues that will boost business value, perhaps for many years.

Unfortunately, the current pandemic may have put these planning matters on hold, but they should be returned to as soon as the economy starts to open up.

The main difficulty you will face if forced to sell is that these planning options may be denied. For example, if your bankers call in their security if you can no longer service debt repayments.

A successful business exit rarely happens without giving due consideration to the factors that will increase business value.

If you would like to consider your business exit planning options in more detail, please call.

If you are forced to sell and don’t know how to proceed, again, please call. We can help.

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