As technology becomes ever more impressive, Virtual Reality applications are going to be increasingly used in the future to generate additional revenue streams for businesses. Properties and business lettings are already being shown in VR using 360 video technology. There now exists a platform wherein groups of people can share the same virtual space and communicate with each other at the same time using VR.
While nothing beats an on-site visit to a property or business, this VR technology will allow potential buyers of properties and businesses to view them from a distance either prior to an initial viewing or following the first viewing to check details. The possibility of bringing multiple people along allows the experience to be shared with family, friends or business associates, without wasting time travelling to and from a viewing. No longer constrained by their distance to a business, the immersive nature of VR will ensure that clients will view businesses and properties originally thought too far away to consider, and it will give them the chance to see every angle whilst remaining comfortable. Aside from travelling, another issue eliminated is whether a building is free to be viewed at a time suitable for all parties, as with VR Business Partnership can show any location at any time of day, which is especially useful if several people are wanting to view a property at the same time.
Estate agents, letting agents and business transfer agents will be able to offer their clients the service thus creating additional revenues; at the same time, they are offering clients and potential buyers an alternative and arguably increased viewing experience to the current distance-viewing options such as brochures or videos. This is a marvellous addition to any property portfolio. Business Partnership began in Leeds in 1979, and through the use of this technology, it can continue its modern-day growth by delivering exactly what potential buyers are looking for.
Business Partnership is working with Eventual Space to provide a brand new angle for our clients to view prospective businesses around the country.
Most businesses owners begin with the end in mind, and so when they set up a business, they visualise an exit plan. Creating a sustainable business model makes sense regardless of whether you’re a new start-up or if your business is long in the tooth. By taking the necessary steps now to make your business as valuable as possible, not only will you have a desirable business proposition for potential buyers in the future, but you also create a profitable present.
First things first; take a look at your systems. You could have the best-paying customers in the world receiving unparalleled customer service delivering an unbeatable product offering, but if your internal systems are a mess, you could very quickly lose the confidence of your potential buyer. IT systems are the backbone of most business so make sure you invest in a system that is smooth running and allows your business to run harmoniously.
The next step is to look at your employees. As with most teams, you’ll have a couple of 100%ers; staff members that if you cut them, they would bleed your company. The majority of your team might be great but a little rough around the edges, and in most companies, you always have those few staff members the rest of the team have to carry over the finish line. The brutal approach could be to drop any dead weight – however, by investing in your people, you invest in your future, so a much more profitable solution would be to identify your staff members strengths and play to them. Also, highlight any weaknesses and key areas of improvement so that you can action the appropriate training. What can you change within the organisation to make them want to be there? It is not always about money. By speaking to your staff, you can find what actually drives them and what makes them feel valued. Within reason you can start to look at what steps you can take to make it happen.
After you have systemised processes in place, and a team personally invested in the success of the organisation, you want to look at your service offering. Is it clear what you do as an organisation? Is your service compelling to customers? What separates you from your competition? Why should people buy what you have to sell? What benefits do they get from your service offering? What are other businesses doing better than you? What are your weaknesses when compared to the rest of the market? Is that something you need to change and if so, what are you doing about it? In a world where every industry is continuously evolving and improving, these are the sort of questions you need to keep asking yourself to ensure that what you have to offer is the best it can possibly be.
Your current customer base will go with your business, and so it is crucial that you choose your clients wisely. This tends to run parallel with your service offering. Are you operating a highly transactional based business with a huge footfall but lower quality products with a cheap price tag? Or do you value quality over quantity? People know like-minded people, and so if you attract quality customers who pay on time and are loyal; when they recommend your services, they tend to bring you more customers of the same calibre. Which is brilliant news for you and any potential future buyer. However, this rule does also apply to volatile, poor paying customers so be mindful who you attract.
With a plethora of feedback platforms and social media being a massive driving force behind a number of buying decisions, it’s incredibly difficult to hide away from terrible reviews if you have a lousy service offering. While no business is perfect, people do make mistakes, and customers can sometimes bend the truth when leaving a review, in general, you can tell the difference between a handful of complaints and a business you should avoid at all costs. A potential buyer is less likely to want to invest if they have an uphill battle before they even get started. On the flip side, if you have a proven track record and an excellent reputation in your industry, your business is more like to attract interest.
The bottom line is that potential buyers look for a company where they can see potential. Maximising on your growth before looking to sell can take away future value and minimise your sales potential. It is a lot more lucrative to sell while your expanding and so if you look at these five key areas, you can start adding a great deal of value to your business today.
‘What is my business worth?’ Good question. And you’re not the only one to ask it.
My experience suggests that asking for the right price feels like more of an art than a science, and, although there are certain formulas, common sense must ultimately prevail. If you are too ambitious, you’ll risk squandering your fresh-to-market feel and if you go too low you could miss out on your rightful dues!
The value of your business depends on the equilibrium between profitability and risk. Valuations generally start with past profits and the value of assets, but the final figure lies tied up in any number of intangibles such as brand, staff, customer list and financial performance.
Remember, your buyer will mainly be interested in past performance as an indicator of future performance. But also remember that they’ll be looking at your prospects also, and will have a keen interest in any long-term contracts and/or recurring revenue streams.
Arriving at a value will usually require analysis of the company accounts, leases, contracts, and prospects as well as stock and assets. Generally, small businesses are valued by adding a goodwill payment to the ‘stock at valuation’ or SAV figure, verified against the value quoted on the balance sheet.
Make sure to take note that the circumstances of why you are selling your business may factor in on its market value. If you want a quick sale, for example because of ill health, you may have to look at a reduced market value.
There are many methods to value your business, these include:
But which one should I use? The answer is dependent on the type of business you are selling.
Ultimately the real value of your business is in its overall proposition – the brand, the product or service proposition, the infrastructure, the knowledge base, the client list and finally the profitability.
It can be a tricky endeavour to value your business. The Business Partnership has over thirty years’ experience in helping people value and successfully sell their businesses. Contact us today for expert advice and a free market appraisal.
At the Business Partnership, ‘We Value Your Business’
Before starting the process of selling your company it is only natural for you to want to as much as possible. If you are able to successfully take the necessary steps in doing so you will likely be selling your business for a premium. However, as with everything in business, make the wrong move and you could end damaging the value and get less money. To avoid such situations there are a number of measures that can be taken to ensure that your business is in the best position possible to sell, some of which have been detailed here.
Understanding and being aware of all of the contracts your business has is extremely important when looking to sell. One of the most important to look at is your premises lease. If you lease a space for your business you may be required to inform your landlord, before you sell, that a deal is near. Much depends upon what is written within the contract. You may need their permission and what are the potential dilapidations? You certainly don’t want a situation where you have a potential buyer that is interested based on the property and location, but will not be allowed to renew the lease.
Regardless of what industry you are in, having accountant prepared financial statements (produced in a timely manner!) is a must when looking to sell. Consider management accounts. Having these prepared for a potential buyer will not only show a certain level of professionalism on your part, but it is also a clear indication of being an organised business whose numbers can be trusted.
Most business owners more often than not will use their company to pay for ‘perks’ as a business expense. This may consist of lunches, travel expenses and even trips, but this will be looked at when you are seeking to sell. Unless properly accounted for, especially tax wise, it not only looks unprofessional, but it will decrease the value of the company in the eyes of the buyer.
One of the biggest mistakes that companies can make when preparing to sell is to chase after low margin business in an attempt to increase growth. Whilst this may seem like a good idea, it ultimately damages your gross margin, can harm cash flow and to the buyer will look as if your business is going backwards as you need to buy in business.
Having contracts or subscriptions with customers is a great way to show sustainable revenue however within these contracts it is important that you have what is called a ‘survivor clause’. This effectively states that just because there is a change in ownership of the company their contract cannot be cancelled. Buyers want a smooth transition and not having to tell customers about the sale removes a major risk and this improves the value of your business.
Depending on what industry you are in, the value of your company will undoubtedly vary. With this in mind, we have compiled a list of the key areas you should be concentrating on as a business owner to ensure that your company is reaching its peak value within your industry.
When it comes to consumers, buyers want a service or product that is unique to your company. This could be a unique market position (think Coca-Cola). Through having this you will be able to surpass your industry peers and consequently increase your overall company value.
Adapting your business model so that you are able to have recurring revenue is one of the best ways to add value. Not all companies necessarily have subscriptions or automatic contracts in place, but finding a way to maintain some form of regularly scheduled revenue will benefit your business. Having this edge over your competitors will help add substantial value, particularly if you are in an industry where recurring contracts are not the norm.
Growth is important within any business, but when looking to sell you will want to ensure that your growth overall surpasses that of your industry. More often than not, acquirers will be much more willing to pay a premium for a business with projected sustainable growth. Is your business scalable? Do your people deliver the systems that run the business to ensure the consistent delivery of sales?
Location can play a big part in company value. Depending on which industry you are in your location can be one of the biggest selling factors to those looking to acquire your business. In large cities such as London, space is extremely limited. Are licenses to operate difficult to obtain making your business not only desirable for its industry but for its location.
A clean bill of financial health is key for your company’s value, this means that everything needs to be accounted for on paper. Whilst Audited statements might be an expense you would rather avoid, they are undisputable evidence of how trustworthy your business is. This, in turn, increases your business value- even if having audited statements aren’t a usual requirement for a business of your size.
Whilst being a boss that is in charge of every aspect of the business can be good, having a second in command with equal knowledge is much more valuable. It’s not often that acquirers want to take on a business where the owner was the only person in the know about how it is run. By having someone else in your chain of command, who is happy to stay on working for the company post-sale, your overall value increases in the minds of buyers.
You will often find that older and better-established companies will want to expand through the acquisition of younger companies who meet these criteria. If your reputation within your industry is as a market or thought leader you will attract buyers. Do you have a PR strategy?
Companies that are able to suffer the loss of any single customer without breaking stride are much more desirable. Acquirers will more often than not be willing to pay a premium for companies that are unaffected by losses. Generally, this is done by ensuring that no customer’s revenue will amount to more than 10 percent. In doing so your company will be valued higher than others and certainly higher than those in the industry who only maintain a handful of large customers.
Lastly, and arguably the most important areas that will ensure company value is customer satisfaction. By having a system in place that consistently and effectively tracks your customers you will be at an advantage to your industry competitors. This evidence that customers would happily repurchase from you or use your service again helps secure your business value.
Your industry only has a limited effect on the value of your company. The truth is that it is not what you do, but the way that you do it that get results. Where your business’ value falls is up to you.
If you wish to set up your business up for the best value then start with one of our Value Builder Scores on our website.
Located throughout the UK, Business Partnership’s experienced regional partners all offer an important service to business buyers and sellers alike – valuation.
It’s a straightforward enough process, you may think. After all, our over-riding objective is to provide impartial, professional and accurate advice to secure the best outcome for our clients, whether they have a leisurely retirement planned or are embarking on an exciting new business journey.
However, every so often the situations we are asked to get involved in are very different from ‘the norm’ and give our partners the chance to demonstrate their considerable mediation skills.
Business Partnership chairman Alistair Glaze explained: “Our independent valuation service is increasingly in demand across three areas: shareholder disputes, pre-nuptial agreements and divorces.
“Valuations for pre-nuptial agreements can relate to properties and businesses and usually come into play when both parties are getting married for the second time or are more mature. They may each own their own property so there may be a disparity.
“We can also help couples who are getting divorced and who have joint ownership of a business or, for example, when two people have been in business together but one has decided to pull out.
“An independent valuation, rather than one from someone who has links to either party, can take the heat out of a potentially difficult situation.”
If you require a valuation, you’re in safe hands with Business Partnership – our priority is providing honest advice with your best interests at heart.
Contact your local regional partner today to arrange a valuation.
(and how a little attention to them can significantly boost the value of your business)
As programs such as the BBC’s Dragon’s Den amply demonstrate, valuing any non-publicly traded business can be as much about ‘gut feel’ as mathematical equations.
That said, when putting a finger in the air, Duncan Bannatyne and bank managers alike will consider the same three foundations of value. Here, we look at what they are and what owners can do to improve how they are perceived.
Business buyers are interested in buying assets, things that are worth something. All formal methods of business valuation are, in effect, ways of classifying different assets, and they boil down to just three:
1. Book asset value: the bankable cash value of the assets of a business. Most of these will be physical items such as office equipment and property. They can include intellectual property, such as the rights to a respected name, especially where that property has a demonstrable market value, but it does not include the goodwill which is often the main value of a healthy going concern.
2. Earnings: A business which is a healthy going concern will be producing profits every year. Buyers will look at the likelihood of that profitability continuing were they to buy the company and how long it to would take for them to get their money back. Note that the earnings that count are those remaining after all executives needed to run the business, have been paid.
3. Intangible assets: goodwill, human capital, access to customers and markets and more. This is where the interests of the bank managers and the Duncan Bannatyne’s of the business world tend to part company.
Book asset value, for most businesses, ‘is what it is’ and there is not much you can do about it. Consequently, this tends to be the easiest area in which tot up the sums involved. Some values, however, can be improved without corresponding costs.
Improving book values at low cost
The idea here is to crystallize, as far as possible, the value of existing assets, so they are seen less as Intangibles & Goodwill (typically subject to far greater risk and thus discounting), and more as sellable assets. For example:
Trademarks
A little administration can work wonders here. Many companies which have been trading for any length of time have real value in their name and product names – value which can be at least partly crystallized by registering the relevant names and trademarks.
Contracts to supply
In some sectors, contracts to supply are relatively easily transferrable and thus, if the contract is firm enough, sellable. Formalising your agreements can transform such commitments into highly credible assets.
Leased premises
The value of a lease on premises can be a zero, even a serious liability (if your rent is higher than market rates or you have costly obligations to repair) or, in prime areas, an asset capable of commanding significant ‘key money’. Businesses fortunate enough to be in such prime areas can, through the simple process of a formal valuation, include this key money within their Book Assets, thus boosting their baseline value.
Earnings, even more than book assets, are easy to quantify – just look at the company accounts. The longer and more consistent the record of earnings, the more reliable they look and thus the less a buyer will discount the likely value of future earnings. In high-profile share sales, we often hear stories of sales at extraordinary multiples of ten or even twenty times earnings. Be warned – such instances are so rare they are best disregarded. In practice, few businesses that sell at all, sell for between one and five times average earnings.
Improving earnings multiples at low cost
The key here is reliability. Anything you can do to make it more likely that the earnings of your business will continue to be healthy, will improve a buyer’s perception of the quality of the ‘earning machine’ he or she is thinking of buying. Amazon, for example, now offers grocery customers an extra discount if they “subscribe” to any item – i.e. commit to repeat orders every month or two. Similarly, regular clients of a business will often agree to retainer contracts which reflect their typical annual spend, adding, in the process, far more value to the business than any discount given.
Intangible assets usually represent the big grey area. What are your relationships worth? Are they worth anything when you leave? What is the value of the affection customers feel for your products/it’s owner? This is where the old adage ‘It’s what someone will pay’ applies most of all.
Improving the value of Intangibles at low cost
Once again, this is all about seeking certainty and reliability. For example if, as so many companies say, their greatest asset is their staff, those employees will be worth a lot more with good contracts, a demonstrably low employee turnover and other hard evidence that the key people want to remain in post. Alternatively, if market share within a geographical territory is central to value, staff contracts with legally enforceable restrictions of trade might be more important, as could be evidence that departing staff couldn’t walk out with vital intellectual property.
If customer loyalty is central to the goodwill value, good evidence of that will reassure buyers. For services, this might involve simple things such as the willingness of clients to provide endorsements or referrals. For physical products, it could be a big fan base on a social media site. Veuve Cliquot champagne, for example, currently has over 175,000 ‘likes’ on its Facebook page. These are people it can contact directly and have a dialogue with. Perhaps more impressively, Joe’s Speciality Sausages in Southport, Merseyside, has 17,656!
For more information on how to value and sell a business, please contact your local office(Opens new window) of The Business Partnership – the business broker solicitors and accountants recommend.
How different types of sale can make your company irresistible to potential buyers.
One of the biggest drivers in determining the value of your company is the reliability of your future sales. When you started your business, when new sales had to be generated from scratch each month, you probably realised that the value of your company was low. As you grew and secured more reliable customers and understood their likely future spending, you probably felt better about your business and also its value. A recurring revenue stream acts like a powerful pair of binoculars for you – and your potential acquirer – to see months or years into the future. Creating a regular income stream is about being more in control of not only your customers spending, but how often they spend.
The more secure your future revenue is, the higher the value the market will place on your business and below is what we call “The hierarchy of recurring revenue”, presented from least to most valuable, in the eyes of an acquirer.
No. 6: Consumables (e.g. shampoo, toothpaste)
These are disposable items that customers purchase regularly, but they have no particular motivation to repurchase from one seller. Often price led purchases, where an offer can overcome brand loyalty.
No. 5: Sunk-money consumables (e.g. razor blades)
This is where the customer first makes an investment in a platform. For example, once you buy a brands razor handle you have a vested interest in buying compatible razor blades. At home I have cling film and air freshener dispensers. Such examples are everywhere.
No. 4: Renewable subscriptions (e.g. magazines)
Typically, subscriptions are paid for in advance, creating a positive cash-flow cycle. Often offer led (e.g. free issues), but in return for a commitment and a direct debit;
No. 3: Sunk-money renewable subscriptions (e.g. the Bloomberg Terminal)
Traders and money managers swear by their Bloomberg Terminal. They first buy or lease the terminal and then subscribe to Bloomberg’s financial information. Bloomberg then “owns” the customer and controls how often the customer buys.
No. 2: Automatic-renewal subscriptions (e.g. document storage)
When you store documents with Iron Mountain, you are automatically charged a fee, each month, as long as you continue to use the service. Relying on customer inertia valued WhatApp at $19bn, all based on annual micro payments.
No. 1: Contracts (e.g. mobile phones)
As much as we may despise being tied to them, mobile companies have mastered the art of recurring revenue. Many give customers free phones to lock you into a two or three-year contract and that direct debit again!
When you put your business up for sale, you’re selling the future, not just the present. So if you don’t have a recurring revenue stream, consider how best to create one, given your type of business. It will increase the predictability of your revenue, the value of your business, and the interest of potential acquirers as they look to the future.
The Business Partnership, have been helping business owners sell their businesses since 1979. You can learn more about The Business Partnership here.
Whether you’re selling, buying, or planning for the future, Business Partnership is here to help. Contact us today to speak with your local Regional Partner and start your journey toward success.