From bolstering revenues to shoring up contracts, there is a huge amount founder-owners can do now to boost the value of an eventual business sale, while at the same time delivering immediate gains. As a professional adviser, you can play a key role in realising these opportunities. Here, deals specialist Adrian Howells looks at how you and your clients can start preparing the ground for a sale and make the most of the short- and long-term value potential.
As a lawyer, accountant or other professional adviser, you know all too well how difficult it can be to get your clients to focus on the eventual sale of their enterprises.
Their first priority is the here and now, from winning contracts to managing cashflows and recruitment. Worrying about what may generate additional value in a hypothetical future sale just isn’t usually on their radar – it’s a challenge for another time.
Nonetheless, the future sale is a subject that needs to be broached and addressed – ideally sooner rather than later. That’s because it’s the surest way for an entrepreneur to reap the rewards of all their years of hard work.
Immediate gains
So how can you encourage your founder-owned business clients to focus on eventual sale and exit?
Many of the preparations and steps you and your clients can get underway now to help bolster the eventual sale price can also deliver immediate benefits. These include building more resilient and consistent revenues, earnings and growth plans. This carrot of near-term gains can make it easier for you to engage your clients in conversations about the future.
Many of the potential value levers offer the win-win of improving the value of the business and opening up advice and service opportunities for you as an adviser.
Five ways to boost value
So, where and how can you work with your clients to deliver the right outcomes? Five priorities stand out:
- Strengthen the quality and resilience of earnings
Reliance on one large customer can not only put-off potential buyers, but also put the business at risk – if the major contract is lost, revenues will plummet.
By diversifying the customer base – launching new products or moving into new markets, for example – your client can make their business more attractive to acquirers, while improving its ability to ride-out market turbulence.
As an accountant, you can help with the financial projections that would underpin diversification plans and help secure funding.
- Review and shore-up contracts
Buyers will be looking closely at the nature, defensibility and enforceability of contracts with customers, employees and suppliers. How secure are orders and commitments to buy, for example? If a key employee wanted to switch to a competitor, how robust are the non-compete clauses?
As a lawyer, this contract review would be an important enabler for a sale, while opening up business opportunities for you.
- Create a credible basis for investment and return
Investment in areas ranging from new plant to targeted recruitment can fire-up revenues and returns. But the payback may take time.
As an accountant, you can play a key role in developing costed forecasts and tracking progress against them. This support will not only be crucial in securing investment for hiring and expansion plans, it can also help to strengthen confidence among potential buyers of the business and encourage them to pay more.
- Target potential buyers
There may appear to be little value in targeting potential buyers when the sale could be some years off. In fact, you can boost the potential of a business by identifying likely buyers and gearing growth plans to align with their particular priorities.
The opportunities include looking out for potential trade buyers who want to move into new markets. In a recent example, we advised PCB Technical Solutions, a facilities maintenance company, on its sale to Sescom, a Polish company that is using the acquisition to gain a foothold in the UK.
Other options include private equity funds. Private equity buyers tend to favour businesses with a combination of strong cash generation, growth plans and financial visibility. These are all attributes that advisers can play a valuable role in developing and honing, but this can take time to optimise. Over the last year, we’ve helped a number of businesses to secure private equity buyers. These range from a company providing financial data solutions, to a firm providing services for people with mental health needs.
- Bring employees on board
Your clients’ employees may be concerned about what a sale would mean for their future prospects.
Once again, you as advisers can make a key difference, from reassuring employees about employment contracts to providing projections about how the business could grow and prosper following a potential acquisition.
For owners who want to go further by helping their employees to take a stake in the business, the options include an employee ownership trust (EOT). Studies have shown that such structures motivate employees to drive further growth, as they have a clear financial interest in the long-term success of the company. This not only helps to improve employee retention, but it can also support recruitment by attracting the best new industry talent.
Let’s talk
If you would like to discuss any of the issues raised in this article or find out how we can help your clients prepare for sale, please do give us a call.
Adrian Howells
Managing Director
adrian.howells@quantuma.com
