Part two considers more ‘value drivers’ that need to be considered and highlighted, when presenting a company for sale to potential acquirers.
How sustainable are the company’s earnings
Maintainable, or Sustainable, Earnings provide prospective buyers with a guide on the expected future income of a business and the stronger and more consistently you can demonstrate your Sustainable Earnings, the better your prospects of maximising deal values. The process of establishing maintainable earnings is integral in driving the value of your company.
To calculate your maintainable earnings, a thorough investigation into all potential financial adjustments should be made. These adjustments are any expenses that are unlikely to occur again, such as excessive directors remuneration (including directors pension contributions), restructuring costs, lease breaking fees / property shut down costs, employee separation costs, bad debts, legal fees or similar non recurring events. Once these expenses are ‘added back’ into your financial statements, a purchaser can glean a true reflection of your company’s financial position.
It is important to provide a detailed guide on historic, current and prospective operating results in order to ascertain a reliable understanding of how sustainable your company’s earnings are. Potential acquirers will be looking for transparency in historic and current figures along with a prediction of projected earnings.
These figures, along with your unique insight into this aspect of the business, are invaluable tools in maximising value and uplifting potential offers.
The company’s market position within the sector it operates
In order to leverage maximum value for your company, it is important to provide potential acquirers with as many value drivers as possible in order for them to understand how the acquisition could prove effective in stimulating their growth targets, as well as how it could contribute to them achieving economies of scale. One such value driver is the company’s market position in the sector within which it operates.
A prominent position within your particular marketplace is key to the success of your business and, ultimately, to increasing the value of your business. Market position is defined by a number of key elements such as the unique selling proposition offered by your business; how established your business is as a brand and the strength of your reputation.
Highlighting your unique, possibly niche, selling proposition to prospective purchasers will differentiate you, ensuring that buyers view your business as an essential, strategic acquisition to add to their already established service offering.
Demonstrating that your business is a recognised brand within your sector will prove to be an invaluable asset in the sale of your business as acquirers will be prepared to pay a premium for a well established brand, with a broad and diverse customer base.
Similarly, a strong reputation for quality of products and/or services offered will maximise the value of your company since it provides potential acquirers with a reputable, trusted business with an established name within the geographical area it serves and within the sector as a whole.
The quality, loyalty and geographical location of your customer base
It is necessary for you, as the business owner, to understand the value that your customer base possesses to prospective acquirers.
According to Marketing Metrics, a repeat customer base is more financially rewarding than a new one, as they state, “the probability of selling to an existing customer is 60 – 70%. The probability of selling to a new prospect is 5-20%.” Therefore, a strong, loyal and repeat customer base can be one of the most useful intangible assets when maximising the value of your business.
An established customer base, especially one with a high percentage of repeat custom, provides an acquirer with the opportunity to purchase a business with stability and great potential for growth and increased profitability.
A diverse and broad range of clients means that your company is not reliant on a small number of customers to bring in revenue. This provides a secure acquisition opportunity whereby purchasers will not be concerned by the possibility of any one client retracting their custom following the sale. If your company can also boast relationships with key players within your sector, this can maximise value further still.
A company with a good geographical spread of customers, and one that is well positioned to serve a wider geographical area, will prove to be very attractive to acquirers, especially as a bolt on opportunity for a synergy company operating within the same or a similar sector.