Don't try and sell your business as a "doer upper"
We’ve all seen properties that have “potential” but are "in need of modernisation” – in short, they need gutting and starting again, which is why they’re generally priced according.
Acquirers are looking for business where they can generate an attractive level of return. The value they’re prepared to pay will factor in any work they have to create that level of profit. The more work required, the lower the offer price. If you try and sell a business which is "in need of modernisation", you’re going to get a low price, or worse, you won’t sell as the required work makes it unpalatable for a consolidator.
Acquirers will normally fall into one of two business model:
1. Keep the purchased business as it is and try to introduce some efficiencies to increase profit
2. Move the clients and assets into new business model (often vertically integrated)
Whilst the best way to make your business attractive will be different depending on the model of the firm you’re selling to, there are lots of common things you can do to increase the sale value of your business, regardless of who’s buying it.
The integrity of your data is crucial – simple as that!
If you’re looking to sell, you must get your client data as clean as possible. Client data will be validated against fee income and form the basis of the offer. Having mismatching data will create more work for the acquirer and form a bad impression about the overall integrity of your data. Take whatever time is required to get your client data in shape. You can do this yourself or outsource to a data specialist but it’s a must before entering the sale process!
You should be able to easily provide information such as:
· Client numbers
· Client income levels
· Client demographics
· Geographical spread
If you can also provide the cost to service a client, and therefore their profitability to the business, you would be doing better than most and go to the top of the class in the eyes of consolidators.
It’s also incredibly important that you have up to date contact details for clients. Email addresses are king as this create an easy and effective way to communicate with the clients on mass, however, also make sure that phone numbers are correct.
Regulatory data is a must. Volume and outcome of complaints, file reviews, etc are all important to have easily accessible. Having trends documented and what you did about them will get you a gold star!
With Consumer Duty coming in shortly, there is more of a focus on data than ever before. Consumer Duty expects firms to not only have data about client experience but also to analyse it, spot trends and use this to adjust the way you work. Without good quality data, this is pretty much impossible. Whilst Consumer Duty isn’t here yet, acquirers will be mindful of it and associate value to firms who are already using the principals in their business.
Document how you work
Imagine you’re buying a new bit of kit that you’re hoping will help you increase your income. You’re excited about the opportunity sitting in the box in front of you. As you open the packaging, you look for the instructions, but there aren’t any! Suddenly, you realise it’s going to take a lot longer to work out how to get any value from it that you anticipated.
A business without an operating manual is like machinery without instructions. Take the time to map and document your processes. Regardless of which model the acquirer of your business is operating under, this will make their life easier, increasing the value to them and therefore the value to you.
It also helps the overall impression that you are on top of how your business runs, instilling confidence in you as the business owner.
Depending on your timelines reengineering processes to create efficiencies can cut the cost base of your business. The more profitable, the higher the sale price. Changes take time to bed in, so I’d only suggest this if you’ve got 12 months or more until your planned sale. Any less than this and there’s a chance that the acquirer will see you’re in a transitional state – back to being a doer upper!
Don’t make unsustainable cuts to artificially inflate your profitability – this is a common tactic and acquirers will see straight through it!
Correct the sins of the past
When selling a business, the due diligence process will uncover EVERYTHING! There is absolutely no point trying to sweep things under the rug or pretending that historic liabilities don’t exist – they’ll come out and will most probably reduce the offer price.
The best solution is to take responsibility and try to resolve any historic or outstanding issues to the best of your ability before sale. Outstanding complaint? Settle it before the sale process starts. Defined Benefit cases? Consider completing a Past Business Review now – an acquirer will assume that they have the cost of doing this and adjust the purchase price accordingly.
If there is anything that can’t be resolved, be upfront about it. Say what happened, what you’ve done and the potential liability. By being proactive, it will go further to instilling confidence in you as a trustworthy business owner.
At the time of writing, legacy/trail clients are worth 1/3rd or less than “current” clients paying ongoing servicing fees. Now is the time to re-engage with all legacy clients, if its profitable to do so.
I know it can be awkward to go back to client’s you’ve not talked to for years, but there really isn’t anything to lose. If the conversation doesn’t go well, you’re in the same place as you started. If they want to reengage, you will triple their value on sale and chances are there may be some additional business in it along the way.
If you follow the above, your “doer upper” will be much more like a show home when you come to sell, increasing its value before, and more importantly after, due diligence has taken place. There are other things to do, and some businesses have specific areas to address, but the above should give you a path to run on.
Not sure where to start? Need someone to talk your approach through with? At Change Squared, this is what we do!
To set up a for a free, confidential conversation, fill in the contact form on our website. Support starts from as little as £995+VAT and could add tens of thousands to the sale value of your business!