Be attractive for buyers!
What do I need to do to be attractive to a buyer?
Let’s change our perspective today and look at the other side. We put ourselves in the shoes of the entrepreneur who has retirement in sight and is considering selling his business.
For many owners, selling a business only happens once in their lifetime. Very few have developed their own business model from building and selling. Many entrepreneurs run their company as a family business for many years, even decades.
But when the day comes to say goodbye and retire, some entrepreneurs (for us the targets of our clients) are surprised how their company is valued.
This is not because the company is not profitable enough or that the revenues are not attractive. Rather, it’s a lack of long-term preparation for the handover.
Why is preparation critical?
To answer this, let’s look at the buyer’s requirements for internal enterprise valuation.
To calculate enterprise value, the “Data Request Lists” request the company’s figures for the last 3 years.
EBITDA, sales and other key figures are usually evaluated three years in retrospect, in order to then draw a conclusion about future development.
The entrepreneur is therefore well advised to prepare the company at least 3 years before the actual start of the sales process. This also includes the maintenance of the financial ratios.
What are the value drivers?
For a future sale there are three important key figures that can strongly influence the value of a company
1. EBITDA
2. REVENUE
3. recurring revenues
The following valuation approaches can be found in our client base:
1. multiple on past average adjusted EBITDA
2. multiple on average revenues
3. multiple on ARR
From our experience, the common financial mathematical models such as DCF are calculated for hedging purposes, but this only plays a minor role for the actual sales price. Of course, this is also due to the fact that buyers need to put a value on the table quickly and do not have the complete data and facts of the company available at an early stage.
The selling entrepreneurs should know the methodologies of the buyer side and thus consciously work towards increasing the value of the company in a targeted and structured manner.
…and follow us on LinkedIn
