10 steps to maximising business value on exit

The Global Financial Crisis (GFC) delayed the exit plans of the baby-boomer business owners, but their need to exit has not gone away. The value of the average business has been limited for a few key reasons:

  • Most businesses have been structured and operated with the tax legislation in mind; profit has been kept low to minimise tax.
  • Little effort has been invested in removing waste from the business.
  • Owners generally have wanted to fund their life-style, and even their children’s’ life-styles, rather that invest in growth.

Another factor is that the ability of some owner’s to manage a growing business has been limited and there has been a reluctance to learn about leadership or invest in consulting services to develop growth capacity.

There are ten steps that can be used to maximize the value of a business and these are outlined below. These steps can be grouped into three distinct phases:

  • Phase 1: Optimum Performance
  • Phase 2: Polishing the Business
  • Phase 3: Creation of the Sale


Phase 1 – Optimum Performance

1.1 Profit Improvement

Improve the profitability of the business by removing waste. There is no point to putting more business through an incapable business and a key measure of how efficiently a business converts its sales is the profit of the business. One of the most efficient industries globally is the automotive component manufacturing industry and the lessons on how they remove waste can be applied to any other industry.

1.2 Growth Plan

Grow the business. A positive trend line of the sales growth can provide confidence that the sales process in the business is working well.

At the end of this first phase the business performance should be optimized, cash is created to fund the next phase of the process, and the sales and profit trend lines show a continuous and predictable improvement. It is at this point that Phase 2 can be commenced.


Phase 2 – Polishing the Business

In this phase make sure that all the elements of a great business are in place. There are four distinct steps in this phase.

2.1 Lock in revenue

Make sure that, wherever possible, the future revenue of the business is locked in, preferably with long-term contracts. A buyer of the business needs a degree of certainty of the five year revenue outlook so contracts with customers need to be robust.

2.2 Lock in management

Establish a management infrastructure that removes reliance on the owner. The management skills and experience (and processes) to lead the business in the absence of the owner need to be in place.

2.3 Brand

Protect the brand of the business. Mechanisms for this include the web-presence, social media, patents, and other intellectual property protection.

2.4 Reduce Debt

Reduce the debt levels of the business in order to clean up the balance sheet. The cash created in Step 1 can be used to retire debt and remove loan accounts.

At the end of Phase 2 the business looks as good as it can and it is now that the sales process can formally begin.


Phase 3 – Creation of the Sale

The key success factor in maximizing the sales price is to find a buyer who “needs” to buy the business.

3.1 Find a buyer who ‘needs’ the business

Ideally several potential buyers have been identified at this point (through brokers or other industry contacts) and an analysis of why the business is essential for each potential buyer is carried out. This analysis often requires changes to the look and feel of the business. The information gained from the analysis enables a specific sale process for each potential buyer to be developed and implemented.

3.2 Negotiate well for the seller

Make sure that the negotiation process goes well. Often the business owner needs to be coached on their role in the sale. The psychology of the sale process must be clearly defined and followed. There is no point in having built a valuable business and then handling the negotiation of the sale badly.

3.3 Anticipate all objections and value reducing tactics

Anticipating all the likely objections that will be raised by the buyer and their value-reducing tactics in the sales process are just part of the sales process planning.

3.4 Manage all the risk

To manage the risk in the sales process we suggest using a Failure Mode and Effect Analysis (FMEA) process to control all identified risks.

If these ten steps are rigorously followed over a period of 2-4 years the probability of getting a high price for the business is maximised. Don’t leave the opportunity to make these critical change too late, ask for assistance.