M&A: Value is not only about the financials

You want to sell your business and, above all, make a large profit from it!

This is a perfectly legitimate objective. As a shareholder, you have supported, managed and invested money and time over many years to develop and sustain your company. Now it’s time for you to pass the baton. Selling a company at the best price requires structured preparation that takes into account several variables.
The increase in value is not only about the financial results. It is also about how a company adapts its strategy in response to economic developments that impact its business. Having an idea of the value of one’s company is a very useful strategic advantage, but it is not enough. Particularly targeted actions, beyond the transformation work on the assets, must be carried out to optimise the company in a sustainable way.
There are several levers to pull in order to increase the value of your business and many of them act on intangible assets and can be quite complex.
In any case, the simplest tools should not be neglected in the first place.

5 simple actions to increase the value of a business before it is offered for sale

1 Increase your turnover

The profitability of a company (or at least the profitable dynamics in the case of start-ups) is particularly decisive when setting a disposal price. In order to demonstrate the profitability of the company, it will usually be necessary to increase turnover and margins. In particular, try to win new contracts or diversify without straying too far from your core business.

2 Diversify your customer base

If more than 25% of your revenue comes from one client, the value of your business will decrease. Do what you can to reduce the dependency you have on your largest customers. By diversifying and multiplying your customers you will benefit from a more balanced distribution of your turnover and will give the buyer a sense of security. It is important to know that the more the buyer feels he is taking a risk by buying your business, the lower the psychological price he will pay. It is therefore important to diversify your sources of income in order to maximise the value of your business.

3 Get as many contractual agreements as possible

The more long-term written agreements or contracts you have with your customers, the more it reduces the uncertainty of your business volume in the future. Buyers value revenues that are recurring because they represent a basis on which profit can grow healthily. Profitability and sustainability of contracts over 2 or 3 years is one of the keys to a successful outcome of negotiations. However, be sure to include the possibility of transferring these agreements or contracts even in the event of a change of majority shareholder.

4 Surround yourself with a reliable team

The certainty of having a reliable and efficient management team considerably reassures the potential buyer. It is in some ways the key to the success of a business after the sale. If the buyer has to hire new people to develop the company, this can be an obstacle to the acquisition and can lower the value of the company. It is therefore necessary to motivate your employees and to continue training them. Autonomous staff is reassuring for a new buyer who is investing a lot in a new company and does not know all the ins and outs.
A long-term incentive plan can be an interesting tool: employees are often your most valuable assets. In order to protect the value of your business, make sure you lock in your key employees with long-term incentive agreements that tie them to the business once it is sold. Always seek legal advice before setting up an incentive plan.

5 Invest

The biggest mistake not to make when you have decided to sell your business is to stop investing. On the contrary, while you are looking for a buyer, you should continue to grow your business. This will indicate that your business is in a buoyant market and that it is competitive.

1. Update your marketing materials, image and website: When buyers are interested in your business, the first thing they will do is look at your website. If your website is old, buyers will notice. The same goes for your marketing material
2. Show a gradual increase in profit: Aim to raise the price and reduce costs to improve the profit margin. Buyers/investors like to see profit margins improve gradually. This is often evidence that you have a competitive advantage, which is very valuable
3. Optionally, redefine your business model so that you are #1 or unique in your services or products: Buyers like to acquire companies that are dominant in their niche.

Picture: Photo by Brett Jordan on Unsplash