Entrepreneurs who strategically prepare their company for sale have a much greater chance of a successful sale.
Preparing for sale means increasing the selling price by maximizing the company’s value until the desired sale date. If you want to sell your company now or in the future and therefore transfer its operations and shares to a third party or management,
you must first prepare your company for sale.
All successful business transfers have in common that the selling entrepreneur has thoroughly prepared by developing an exit plan.
Exit plan.
What is my company worth? That’s undoubtedly the first question when considering selling. A good exit plan starts with a Valuation Report from an expert business valuation specialist. It also includes the reason for selling, the composition of your sales team, and the development of a step-by-step plan to concretely steer the key figures that increase the company’s value, as stated in the valuation report. Keep the period short, for example, 1.5 years with clear milestones.
Compiling the Business Valuation Report and providing guidance in preparing and executing the sale are two separate processes and can be carried out by different parties.
Valuation.
The value of your company is determined by two factors: its free future cash flows and its risk profile. For valuation, the future cash flows are discounted at an interest rate based on the company’s risk profile. By improving these two factors, you directly influence the company’s value.
Cash flow.
The higher the free cash flow, the higher the valuation.
You can increase free cash flow and thus create value in three ways: by optimizing your working capital, controlling costs, and increasing revenue.
The step-by-step plan determines which key indicators, the value drivers, to focus on to increase the company’s value.
Risk profile.
The higher the perceived risk, the lower the buyer will value your company. If you want to create value, you must therefore try to lower your risk profile. Risk reduction is therefore a key component of the action plan.
For SMEs, the BDO model is an excellent method used by many professionals for determining the risk profile. Risk is determined based on
eight elements, including dependence on customers and suppliers. Each element is assessed against a standard determined by the actual cases of the Business Valuers. This practical data ensures that the BDO model remains continuously up-to-date.
A proper assessment of these risks not only leads to a better understanding of your company’s value but also to insight into what you can do to reduce them and thus create value.
Company value versus price.
It’s important to understand that there’s a difference between company value and the price paid for a company.
Company value is the amount calculated using a valuation method to determine the company’s value. The price
is the amount the buyer pays and is the outcome of a negotiation process. Price and company value are usually not the same.
