I know several business owners in Worcestershire who have been approached, or are in discussions with a potential buyer for or investor to their business. This is both scary and exciting times for business owners.
However, valuing a business is a tricky task, and is a bit like selling a house – it’s worth what the next person’s willing to pay for it. Normally businesses are sold for a multiplier of revenue, or of net profit. This multiplier can range greatly from business to business, and the market in which the business operates.
If you haven’t thought about the ‘exit’ from your business, it is worth having a discussion with your accountant, or a corporate finance expert.
Increase Business Value
So how could IT and technology help? If the business being sold has sophisticated and integrated systems in place, it can increase the value of the trade sale by up to 20%. This makes sense when you think about it. Imagine there were two businesses offering similar products and services, and with similar profitability. One uses paper and the ‘memory’ of key staff, the other business has a Customer Relationship Management (CRM), an intranet, an Enterprise Resource Planning (ERP) system, an HR system, client contracts signed with clear terms and conditions in place, and client project records up-to-date and well organised. Which would you buy? The one with the systems in place is more likely to allow you to grow the top line quicker, and to improve the bottom line. The other, less organised business is clearly more risky, as it’s perhaps not clear about how the profit and loss is perhaps related to day-to-day activities. The adage “If you don’t measure it how can you manage it?” springs to mind.
The entrepreneurs reading this may buy the less well organised business, but obviously for a lower price. They can then implement IT systems, software, applications, processes and staff training, and improve the value of the business very quickly, perhaps selling it on within 2-5 years.
My recommendation is that now that the economy is in growth, and the business climate has more confidence, run your business ‘trade sale ready’ by investing in IT and software systems, and increase business value through this investment.