£30.00 US $60.00 Business and management ISBN: 978-0-7494-5117-2 Kogan Page 120 Pentonville Road London N1 9JN United Kingdom www.kogan-page.co.uk Kogan Page US 525 South 4th Street, #241 Philadelphia PA 19147 USA The value of your business is closely linked to your ability to sell it. How to Value and Sell Your Business will demystify all the ways of valuing and selling your business, taking you step-by-step through assessing its present and future worth, identifying potential buyers, maximizing the selling price and managing the sale process. You cannot begin to plan an exit from your business too soon. Having a sound strategy in place will make all the difference when you do come to sell up, and will ensure you make maximum profit from the sale. Explaining technicalities in straightforward language, How to Value and Sell Your Business takes you through all the options and highlights the various paths you can take to ensure the best deal possible. Andrew Heslop has bought, developed and sold businesses for profit. Prior to setting up and running his own businesses, he worked for several years as a business consultant with PricewaterhouseCoopers. He now runs workshops on negotiation skills, winning business in competitive pitch situations and selling to large organizations. Achieving an accurate assessment of a business’s value and having a clear exit strategy are an essential part of effective business planning, even if the sale may be well in the future. How to Value and Sell Your Business aims to inform and support business owners and senior managers of private firms who are seeking to value their companies and to release equity through a sale or share offer. The book includes chapters on: • identifying potential buyers; • maximizing the company’s value; • developing an exit strategy; • handling legal issues; • managing professional advisers; • surviving a lock-in period. W ritten by an experienced business owner in a practical “how to” style, this book considers the strategic issues surrounding a company sale, and provides an accessible explanation of the whole valuation process and the options for sellers. It gives particular emphasis to the legal and financial issues, and provides readers with a level of knowledge that will enable them to talk to business advisers with confidence and make the very best use of the resulting professional advice. The essential guide to preparing, valuing and selling a company for maximum profit Andrew Heslop How to Value & Sell your Business RECOMMENDED BY INSTITUTE OF DI RECTORS Heslop HOW TO VALUE & SELL YOUR BUSINESS HTValueSellYrBiz_aw:Layout 1 28/11/07 11:17 Page 1 How to Value & Sell your Business HTVyourBiz_HP:Layout 1 27/11/07 14:48 Page 1 For my three girls: Tracey, Holly and Lucy. With love. London and Philadelphia The essential guide to preparing, valuing and selling a company for maximum profit Andrew Heslop How to Value & Sell your Business HTVyourBiz_TP:Layout 1 27/11/07 14:46 Page 1 This book has been endorsed by the Institute of Directors. The endorsement is given to selected Kogan Page books which the IoD recognizes as being of specific interest to its members and providing them with up-to-date, informative and practical resources for creating business success. Kogan Page books endorsed by the IoD represent the most authoritative guidance available on a wide range of subjects including management, finance, marketing, training and HR. The views expressed in this book are those of the author and are not necessarily the same as those of the Institute of Directors. Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and author cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First published in Great Britain and the United States in 2008 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road 525 South 4th Street, #241 London N1 9JN Philadelphia PA 19147 United Kingdom USA www.kogan-page.co.uk © Andrew Heslop, 2008 The right of Andrew Heslop to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 978 0 7494 5117 2 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Heslop, Andrew. How to value and sell your business : the essential guide to preparing, valuing and selling a company for maximum profit / Andrew Heslop. p. cm. Includes index. ISBN 978-0-7494-5117-2 1. Sale of business enterprises. 2. Business enterprises– –Valuation. I. Title. HD1393.25.H45 2007 658.1'64– –dc22 2007041519 Typeset by JS Typesetting Ltd, Porthcawl, Mid Glamorgan Printed and bound in Great Britain by Bell & Bain Ltd, Glasgow THIS PAGE INTENTIONALLY LEFT BLANK v THIS PAGE INTENTIONALLY LEFT BLANK vi THIS PAGE INTENTIONALLY LEFT BLANK vii THIS PAGE INTENTIONALLY LEFT BLANK viii Contents Acknowledgements xxvii Foreword xxxiii Introduction 1 1. Who Will Buy Your Business? 10 Competitors 1 1 Suppliers 14 Customers 15 Employees 17 Franchise businesses 18 Private equity firms 19 Business angels 19 2. Valuing Your Business 21 Sell more, charge more, spend less 21 A little economic philosophy 22 Customer base 26 Predictability of workload 27 Costs under control 27 Management 29 Sustainable profits 29 Assets 29 Strategic fit 30 Externals 31 Barriers to entry 31 Valuation methods 32 Sector rules of thumb 39 [...]... 1 To help you assess how much your business is worth (or may be worth in future) 2 To provide ideas and enthusiasm for the process of identifying who will buy your business 3 To provide ideas for maximizing the sale price achieved 4 To help you plan and manage all aspects of the sale process Achieving an accurate assessment of the value of your business is not just important when the time comes to sell. .. of company directors who have been through Foreword xxxiii the process – and have witnessed both triumph and trauma at first hand Their insights into the process are too valuable to be ignored Miles Templeman, Director General, Institute of Directors THIS PAGE INTENTIONALLY LEFT BLANK xxxiv Introduction VALUING AND SELLING YOUR BUSINESS How much is your business worth? If you are able to answer this... culminated in the publication of this book Ray is perhaps the only person in the history of the world to sell a print business through a physiotherapist DISCLAIMER The primary purpose of this book is to help you consider how to exit your business, and it describes the processes that might be involved Its aim is to be helpful and to offer practical insights All information within the book xxviii Acknowledgements... question with a sensible and tangible figure you are already well ahead of most business owners How much your business is worth is inextricably linked to the question ‘Who will buy your business? ’ Straightforward questions often lead to complicated answers but this book aims to demystify the process of valuing and selling a business The ideas presented will be useful and direct, and based on real-life... acquisitions are made to gain market share, achieve economies of scale or product synergy, diversify risk or ensure supplies or outlets Sales may stem from the retirement of the owner and the realisation of investors’ capital to, in some unfortunate cases, the so-called ‘fire-sale’ of a struggling enterprise Whatever their reasons for selling, How to Value and Sell Your Business will provide business owners... xvii How the big boys do it Creating your own investment story 40 43 3 Developing an Exit Strategy Set the parameters of success The time to make a profit is Targeting potential buyers Planning ahead to maximize value Managing your exit process Different types of money Tax planning 47 48 49 50 53 54 56 60 4 Professional Advisers Accountants Lawyers Business brokers 66 67 71 76 5 Marketing Your Business. .. money) through a bank or other investment company, it will probably want to assess the value of your business as it stands This figure represents a tangible asset that can be used as security in the event that things do not go according to plan Understanding the value of your business is important whether or not you have firm plans to sell in the near future ... practical, readable insight into how to maximise the valuation of their enterprise and derive the best possible return from its sale Clear strategy, careful planning and expert advice are all needed Many owners of private companies only have the opportunity to sell once in a business career and it is something they cannot afford to get wrong This book will also help them to avoid some of the stresses... Factors that might affect the sale Consultancy Service businesses Retail Manufacturing 138 138 140 144 145 146 9 Golden Handcuffs: Surviving a ‘Lock-In’ Period Big decisions are now shared decisions Never explain or justify Small factors become annoying The Human Rights Act Ideas for a successful lock-in Conclusion 149 150 150 150 151 152 157 10 What Next? 159 11 A Call to Action Who will buy your business? ... in good faith, but for obvious reasons cannot be guaranteed to be appropriate when applied to your specific circumstances In many respects this is not a ‘do it yourself’ book Some of the legal issues involved in planning and conducting a business sale are complex and variable You will be advised many times during the book that you should refer to an experienced lawyer or accountant This advice is repeated . 19147 USA The value of your business is closely linked to your ability to sell it. How to Value and Sell Your Business will demystify all the ways of valuing and selling your business, taking you. essential guide to preparing, valuing and selling a company for maximum profit Andrew Heslop How to Value & Sell your Business RECOMMENDED BY INSTITUTE OF DI RECTORS Heslop HOW TO VALUE & SELL YOUR. DI RECTORS Heslop HOW TO VALUE & SELL YOUR BUSINESS HTValueSellYrBiz_aw:Layout 1 28/11/07 11:17 Page 1 How to Value & Sell your Business HTVyourBiz_HP:Layout 1 27/11/07 14:48 Page 1 For