When considering the sale of a company, owners should be prepared to assess the key attributes of their business in order to harness the potential to maximise value. The final sale value of a company can be affected by a number of variables and it is important to note that a business is only worth what a potential acquirer is prepared to pay for it.
Typically, the maximum price is paid by the purchaser to whom the business offers the best strategic fit and can clearly recognise the company’s core strengths. These core strengths or ‘value drivers’ should be presented to potential acquirers in order to highlight the company’s key attributes; ultimately, driving ‘competitive interest’ from multiple prospects, resulting in a maximised final transaction value.
Over the next few days we will consider the key ‘value drivers’ that need to be considered and highlighted, when presenting a business for sale to potential acquirers.
Recent, current and projected financial performance of the company
When selling a company, it is important to undertake a detailed analysis of your company’s financial performance. Ensuring that you can display accurate and organised financial statements will provide transparency for potential buyers and will put you in a stronger position for maximising value during a business sale.
A breakdown of your company’s recent financials will provide acquirers with a detailed insight of the historical profitability and performance of the business, as past profits are a reliable indicator of a company’s overall value. Past, along with current, financials can be used to predict the potential future earnings of a business and their importance should not be underestimated.
A detailed future financial projection of a business, especially when the business can display that it is growing or has significant growth ahead, will demonstrate the ‘future’ value to potential acquirers. By articulating potential growth through financial projections, the value of a business can be maximised, thus uplifting the offers received from acquisitive parties.
Assets and current Balance Sheet
A current balance sheet provides a snapshot of the overall health and state of your business at one particular point in time and is a starting point for an acquirer wishing to understand your company’s financial condition.
It serves as a key consideration in the valuation of a company and a healthy balance sheet can help to maximise the final transaction value. It is important to consider the following elements of a balance sheet when understanding how to use it as a tool to maximise value:
Cash reserves – within the balance sheet are an important indicator of a company’s fiscal strength and potential for future growth. Increasing cash reserves signify both strong financial performance and position.
Liabilities – provide a key insight into a company’s financial condition and, if the balance sheet shows fewer liabilities than assets, the company will be a much more attractive acquisition proposition for potential buyers.
Assets – having an up to date valuation of your company’s assets is a useful tool, not only for inventory purposes, but also in valuing your business. Surplus assets are tangible items owned by the business that are not essential to the day to day operation of the business. These can include a freehold property, surplus cash resources etc.