1 GET ADVICE
Pick two or three accountancy or corporate fi nance fi rms. Ask them to place a price on your business.
2AVOID FORMAL VALUATIONS
Don’t bother with formal valuations. They’re expensive and buyers will make their own assessment. The exception may be family businesses where you are selling to other shareholders.
3ASSESS THE MARKET
Assess the ‘sexiness’ or ‘fragility’ of your sector. Advisers will fi re questions and take a view. Be realistic. Consider your competition, notable changes in the market, the management team, your own importance to the business, and anything that may boost, or indeed, threaten your price, such as outstanding litigation.
4MAKE COMPARISONS
Look at comparable public companies’ share prices in your sector. This is always a good starting point, but be aware of equating your performance with that of a more successful player in your sector.
5APPLY VARIOUS VALUATION METHODS
Try various valuation methods and fi nd a middle ground. Methods include an ‘earnings multiple’ (profi ts after tax); an ‘EBIT (earnings before interest and tax) multiple’, applied where you have debt in a business; ‘asset-based valuations’ if the business has strong intangible assets, such as patents or key employees; and ‘discounted cashfl ow’ based on estimated future revenues, such as companies that have yet to commercialise a product.
6SPREAD YOUR FEES
If you’re selling, offer advisers a financial incentive based on completion, such as a percentage of the transaction. This will ensure they strive to create competitive tension when marketing the business. Pick advisers with industry knowledge, track record and contacts at home and abroad to maximise the chances of driving up the bidding.
7OFFER INCENTIVES
Incentivise your key management members. This helps to maintain the value throughout the process so that the team keeps its eyes on the day-to-day.
8TAKE PROPERTY AND CASH WITH YOU
Pull property and cash in the business out of the equation – unless it is part of your valuation method. Make sure though that the promised growth is not dependent on those assets remaining in the business.
9DON’T INFLATE FIGURES
Don’t change accounting policy to inflate profits. It gives the buyer a great reason to renegotiate and is unethical.
10BE REALISTIC
It’s a universal truth that all entrepreneurs think their business is worth more. But if you hang onto that view you may just scupper a fair and worthy deal.
