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16 Jul 2018
Hi. I’m Claire Faulk, a Regional Business Partner at the Wellington Regional Economic Development Agency (WREDA). If you’re a growing ICT business in the Wellington region, you’ve very likely worked with me on building capability in your business. Whether it be in marketing, finance or strategy, I can advise what areas of the business you could use some help with.
One question business owners often must consider is how to maximise the value of their business in preparing for an exit. Here are a few ideas to ensure you are capturing and creating value-add to your business as it grows. These ideas will not only increase the value of your business when it comes time to sell, they will make the business more robust in the long term.
Here we go:
A husband and wife were preparing to sell their business, and were disappointed with the business valuation of $100k. They were told that since all the information on how to run their business wasn’t documented (it was in the owner’s heads), this value wasn’t captured and couldn’t be sold. So, they hired Strictly Savvy to document their systems and processes digitally, which captured their ‘recipe’ for successfully running the business. The couple then went on to sell their business for $300k.
Consider operational efficiencies and cost reductions and put these in place well in advance of the sale so there is time to demonstrate higher earnings. Formalise any existing verbal agreements into written, signed contracts. Consider getting on approved bid lists.
Firstly, pay yourself market rates. A business owner continued to pay himself the same wage he started the business on ten years earlier, at $60k. The company grew significantly over those ten years and he was surprised to learn that the current market rate to hire a CEO of the same calibre required to fill his role was $250k. If you can demonstrate your business functions well with owners and key staff paid at market rates, then it will be more attractive to buyers when it’s time to replace you.
Ensuring that you have a strong management team around you will also go a long way toward proving that existing client relationships and revenue streams will continue, even if you’re no longer in the day-to-day running of the business.
Seek expert professional advice to make sure your financial statements are accurate, and you can demonstrate solid cash flows. It may be necessary to tackle ownership issues and separate family/friend relationships from the business goals.
If you have these points in place you will be in a much stronger space to sell. If you want to discuss planning your exit strategy or explore ways to add value to your business then email me at: [email protected]
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