Grooming Your Business for Exit

If you have ever sold a house or car, the principle of ‘grooming’ should be familiar to you. You know that a good polish, a new paint job, or replacing rusty guttering can make a big difference to the sale price.

When it comes to selling a business, the process is more involved, but the same principle applies – with forethought and planning you can attract more potential purchasers and maximise the value of your business.

The first step is to identify business risks and manage them in order to cast a wider net over potential buyers and increase the value of your business. As a general rule a company’s value is determined by a simple equation;

The multiple is a function of perceived growth versus perceived risk. Grooming helps to reduce risk and therefore increase the multiple.

The first step towards increasing that multiple is to set key grooming objectives.
Here is a checklist of some objectives you should consider:

• Existing owner is not crucial to the business’s continued success.
• Specific industry experience is not essential for potential buyers.
• Clients and suppliers are not inextricably tied to the current owner.
• Management, operational and information systems are appropriate.
• Key staff are in place and are stable.
• Intellectual property is preservable and transferable.
• Market position is stable.
• Legal and contractual arrangements are tidy.
• Past performance is credible.
• The platform is right for growth and a profitable future.

Obviously, some of these objectives are more easily achievable than others. For example, where there is a risk of the client base being disrupted by a sale it may be necessary for the current owner to exit the business more gradually while grooming someone else to take over. (For more information on how PwC assisted a client in this process go to Imagetext Case study).

When the key objectives have been determined it is possible to compare the shape of your business now with the ideal shape you would like it to be in for sale. You can then take the necessary steps to mould it into that shape

Another useful approach to identifying potential negatives is to imagine yourself as an interested, but sceptical potential investor entering a decision making corridor. As you pass along that corridor you will peer through doors at various aspects of your business and identify what seems risky. The key to a successful sale is to bolt the exit doors by showing that the risk can be managed and that the potential is shining at the end of the corridor, drawing the investor towards it.

The most important thing to remember when grooming a business for sale is that it takes time, but with the right advice and assistance it’s possible to maximise the sale value of your business and exit your business in a way that suits you.

To find out more about how Pricewaterhouse Coopers business advisors can play a crucial role in grooming your business for sale contact:

Robbie Gimblett
Ph: 09 355 8036
Mob: 021 504 066