6 little things that can increase the value of your family business

I was watching the recent 2017 World Championships in London and some of the close finishes got me thinking.

The GB and NI reached their medal target by the “skin of their teeth” on the last day, but they suffered from six 4th places that would have changed story into one of wild success. For example, Laura Muir finished 4^th by just 0.07 seconds and was less than 0.4 seconds from taking Gold. You might expect this in a 100m race, but over 1,500 meters it seems harsh.

It is clear therefore that in athletics one tenth of a second can be lost in the tiniest of miscalculations.  And when it comes to selling your business, markets can be equally cruel. Get everything right, and you can successfully exit your business for a premium. Misjudge a few minor details and a buyer can walk, leaving you with nothing.

Here is a list of six details to get right before you put your business on the market:

• Find your lease. If you rent, you may be required to notify your landlord if you intend to sell your company. Ensure you know the fine print to make sure you’re not scrambling at the last minute to seek permission from your landlord to sell.

• Professionalise your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.

• Stop using your company as an ATM. Many business owners run trips and other perks through their business. Fine, but if you’re planning to sell in the next 7 years, these treats will artificially depress your earnings and can reduce the value of your company in the eyes of a buyer by much more than the value of the perks. Perhaps even more significantly concerns over their tax treatment could also cost you a lot more tax on exit, as neither buyers or their funders will want to be exposed to a tax investigation.

• Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing sales by reducing margins. You may be advised you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin they will question your pricing authority in the market and perhaps assume your journey to the bottom of the commoditisation heap has begun.

• If you’re lucky enough to have formal contracts with your customers, make sure the contracts cannot be cancelled when the ownership of the company changes. Your solicitor should confirm.

• Get your Value Builder Score. Take 13 minutes to answer the Value Builder questionnaire You’ll see how you performed on the eight key drivers of company value and you can identify any gaps you need to fill before taking your business to market.

Like competing at the World Championships, selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner. Fumble your preparation, and you could end up out of the medals.