Understanding that carefully planning, good timing and an effective approach is critical to how to sell a business successfully. It involves presenting the business in the right light, intelligent research and carefully approaching the right buyers, avoiding technical pitfalls and creating and managing a competitive process. The stages in how to sell your business successfully include: Selecting an advisory team Business valuation Value enhancement strategy Timing and personal financial review Positioning your business in its best light Research and create competitive environment Negotiate and structure the right deal Project manage to completion This guide provides an insight into each step.

1.
Guide:
Valuations
and
selling
a
Business
at
Maximum
Value
www.avondale.co.uk
Page
1
of
4
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
Contents
The
successful
sale
of
a
business
requires
careful
planning,
good
timing
and
an
effective
approach.
It
involves
presenting
the
business
in
the
right
light,
intelligent
research
and
carefully
approaching
the
right
buyers,
avoiding
technical
pitfalls
and
creating
and
managing
a
competitive
process.
The
steps
are:
1. Selecting
an
advisory
team
2. Business
valuation
3. Value
enhancement
strategy
4. Timing
and
personal
financial
review
5. Positioning
your
business
in
its
best
light
6. Research
and
create
competitive
environment
7. Negotiate
and
structure
the
right
deal
8. Project
manage
to
completion
This
guide
provides
an
insight
into
each
step.
1.
Selecting
an
advisory
team
Undertaking
a
business
sale
is
one
of
the
most
important
financial
decisions
you
will
ever
make.
The
approach
an
advisory
team
take
can
make
a
real
difference
in
maximising
value
and
minimising
distraction.
There
are
many
legal,
tax,
accounting
and
regulatory
issues
to
address.
In
addition,
there
is
the
matter
of
finding
the
most
profitable
buyer
for
your
business
and
then
negotiating
and
structuring
the
most
advantageous
deal,
ideally
in
a
competitive
environment.
Start
by
meeting
several
intermediaries.
Appoint
based
on
track
record,
ability
to
create
highly
strategic
transaction
at
maximum
value,
experience,
personality,
research
resources,
international
approach
and
technical
‘deal
structure’
knowledge.
Make
sure
fees
are
linked
to
success
deliverables;
avoid
high
non-­‐performance
based
time
fees.
Finally
make
sure
they
take
the
time
to
understand
your
aspirations,
approach
and
business.
A
good
intermediary
will
also
help
you
understand
the
timing
and
value
influencers.
2.
Valuation
Values
are
often
significantly
exceeded
by
creating
competition
with
the
right
strategic
buyer.
A
forecast
valuation
is
helpful
however
as
a
review
of
prospects
for
increase
in
value
both
“quick-­‐win”
and
“long-­‐term”
and
also
to
understand
and
seek
to
realise
aspiration
value
(beyond
the
numbers).
A
valuation
will
seek
to
measure
the
trust
the
market
has
in
a
business
and
in
its
ability
to
create
wealth
(the
goodwill).
Goodwill
is
intangible,
although
the
accounting
definition
is
the
difference
between
the
purchase
price
and
the
company’s
balance
sheet
assets
(net
assets).
There
are
many
different
techniques
for
calculating
the
value
of
a
business,
such
as
industry
specific
formulas,
asset
based
valuations,
discount
cash
flow
forecasts
and
dividend
formulas.
However,
typically
in
unquoted
smaller
businesses,
the
most
usual
method
is
to
use
a
multiple
of
one
year’s
“adjusted”
and
maintainable
profits.
The
chosen
multiple
is
the
number
of
years
it
is
considered
acceptable
to
generate
a
payback
on
the
investment.
This
can
be
expressed
as:
Multiple
x
“Adjusted”
Maintainable
Profit
per
annum
pre
tax
=
Likely
Valuation
Profit
Adjustments
A
sustainable
profit
figure
will
be
assumed,
often
using
last
year’s
net
profit
as
a
base.
It
is
then
normal
to
make
specific
adjustments
to
this
figure
to
obtain
the
net
profit
to
a
buyer,
rather
than
the
one
the
previous

2.
Guide:
Valuations
and
selling
a
business
at
maximum
value
www.avondale.co.uk
Page
2
of
4
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
owner
may
have
enjoyed.
This
is
called
calculating
the
adjusted
net
profit.
An
adjusted
EBIT
or
EBITDA
may
be
used
depending
on
sector.
This
is
calculating
the
earnings
before
interest
and
tax
(EBIT)
or
depreciation
and
amortisation
(DA).
This
can
include
items
such
as
salary
or
extraordinary
or
personal
costs.
Adjustments
to
the
net
profit
might
include
‘add
ons’
such
as
costs
for
placing
the
business
under
management,
additional
premises
cost
if
requiring
relocation
and
investment
required
replacing
old
equipment.
Multiple
influencers
Low
multiple
High
multiple
Volatile
Less
desirable
SME
business
Poor
expansion
Declining
sector
(poorly
perceived)
Lower
profits
Poor
infrastructure
Low
economies
Sustainable
Highly
expandable
Growth
sector
Bigger
profits
Strong
team
Recognised
Brand
Growth
record
Intellectual
Property
Multiple
Range:
Below
is
a
typical
guide
to
the
‘assumed’
multiple
range
x
the
adjusted
profit.
The
profit
is
usually
expressed
either
PBIT
for
service
companies
or
EBITDA
for
capital
intensive
businesses
such
as
manufacturing.
The
table
assumes
a
debt
free/cash
free
balance
sheet
included
in
a
deal,
excluding
Freeholds.
Aspiration
value
should
always
be
sought
to
secure
transactions
beyond
the
multiple.
3.
Value
enhancement
strategy
Prior
to
sale
owners
should
be
looking
at
strategic
ways
to
increase
the
value,
not
only
through
the
level
of
profits,
however
also
through
addressing
elements
that
will
directly
impact
the
final
valuation.
These
can
include:
• Ensuring
steady,
recurring
and
forecastable
income.
• Eliminating
dependency
on
key
members
of
staff,
clients
and
suppliers.
• Ensuring
solid
systems
are
in
place.
Clean
accounts
and
balance
sheet
with
good
Management
Information
Systems
• Creating
strategic
long-­‐term
growth
plans.
Not
only
will
this
increase
value
but,
being
clear
on
your
alternative
strategy
creates
a
powerful
walk
away
position
to
leverage
negotiations
and
optimise
price.
• Ensure
your
website
represents
your
company
in
its
best
light.
• Consider
geographical
and
sector
diversification.
Businesses
should
aim
to
“own”
a
niche
marketplace.
• Ensure
all
legal,
tax
and
accounting
paperwork
is
in
order

3.
Guide:
Valuations
and
selling
a
business
at
maximum
value
www.avondale.co.uk
Page
3
of
4
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
4.
Timing
and
personal
financial
review
The
timing
of
the
deal
should
be
when
the
business
is
in
good
shape
but
ideally
still
growing
and
at
a
time
when
the
shareholders
have
reached
a
personal
cross
road.
It
is
vital
to
be
objective
as
many
a
deal
is
lost
when
the
shareholders’
needs
drive
the
timing
rather
than
what
is
right
for
the
business.
It
is
also
important
to
analyse
the
forecast
net
proceeds
versus
the
net
sale
income
you
will
receive,
versus
the
time
wealth
achieved
from
a
sale.
If
fast
growth
is
envisaged
seek
an
elevator/earn
out
deal
which
working
with
the
buyer
will
maximise
the
proceeds
over
time.
Costs:
Tax
on
any
capital
gain
you
make
will
probably
be
your
biggest
cost.
Currently
“Entrepreneurs’
Relief”,
an
Inland
Revenue
allowance,
allows
the
first
£10m
to
be
at
10%
per
executive
shareholder
owning
more
than
5%
for
more
than
a
year
in
a
qualifying
company.
The
relief
is
given
after
all
other
reliefs
and
allowances.
The
amount
of
the
reduction
depends
on
how
long
you
held
the
asset
(the
qualifying
holding
period),
and
whether
the
asset
was
a
business
asset
or
a
non-­‐business
asset.
Entrepreneurs’
Relief
creates
a
significant
argument
for
entrepreneurs
to
make
money
through
capital
gain
rather
than
through
ongoing
profits.
Sellers
also
need
to
allow
for
professional
costs
including
a
merger
&
acquisitions
advisor,
a
tax
advisor,
accountant
and
a
lawyer.
For
smaller
companies
professional
costs
are
usually
between
5-­‐10%
of
the
proceeds.
Some
of
the
costs
will
be
prior
to
the
sale.
Income
Vs
Capital:
The
diagram
below
further
assists
in
making
the
right
decision
as
to
when
to
sell.
It
highlights
income
vs
capital
considerations.
The
scenario
depicted
is
a
company
valued
at
£1m
based
on
a
multiple
of
4.
The
end
result
that
the
owner(s)
would
have
to
run
the
company
for
5.859
years
on
the
same
profit
levels
to
achieve
the
same
income
as
they
would
by
selling
the
company.
You
should
also
consider
the
fact
that
Capital
is
certain
whereas
future
income
is
uncertain.
A
certain
(capital)
£0.90
today
is
worth
more
than
an
uncertain
(income)
£1.00
tomorrow.
Income
(uncertain) Capital
(
certain)
Assumes
all
profit
stripped £250,000 £1,000,000
Assumes
multiple
of
4
-­‐
Corp
tax
@20% -­‐£50,000 -­‐£70,000
-­‐
Estimate
legal
&
brokers
costs
-­‐
Dividend
after
corp
tax@
25% -­‐£50,000 -­‐£93,000
-­‐
Assuming
Entrepreneurs’
Relief
at
10%
+£41,850
Interest
at
5%
for
1
year
Total
net £150,000 £878,850
Total
Net
No
of
years
earnings 5.859
Assumes
full
profit
strip
each
year

4.
Guide:
Valuations
and
selling
a
business
at
maximum
value
www.avondale.co.uk
Page
4
of
4
01737
240888
This
guide
is
not
definitive.
Accuracy
is
not
guaranteed
and
it
does
not
replace
professional
advice.
5.
Position
business
in
best
light
A
carefully
crafted
information
pack
will
drive
value
by
highlighting
opportunities
and
potential
synergies.
It
ensures
that
your
advisor
fully
understands
your
business
and
is
thereby
able
to
position
unique
benefits
to
each
interested
party.
A
good
data
pack
will
not
only
contain
current
and
historic
company
information
but
also
forecasts
and
financial
modelling
around
potential
synergies.
An
effective
data
pack
will
not
only
ensure
optimum
positioning
of
the
business
but,
as
all
information
is
prepared
in
advanced,
will
also
accelerate
the
entire
process.
6.
Research
and
create
competitive
environment
In
order
to
value
a
business
and
to
then
seek
to
exceed
this
it
is
essential
to
secure
the
right
buyers
in
order
to
create
competitive
bids.
In
depth
research
should
be
conducted
to
identify
these
potential
purchasers
using
a
combination
of
global
intelligence
tools
and
a
database
of
active
financial
and
trade
buyers.
A
business
in
an
auction
can
sell
for
more
than
200%
of
financial
forecasts.
Through
synergies
and
economies
of
scale
available,
the
business
will
be
worth
differing
amounts
to
buyers.
The
optimal
purchaser
is
one
who
has
a
‘we
want,
we
need’
motivation
who
drives
their
own
shareholder
value
via
an
acquisition.
A
good
advisor
will
carefully
position
synergies
to
multiple,
interested
parties
utilising
financial
modelling
and
future
visioning
to
demonstrate
the
benefits
of
the
acquisition
on
an
international
basis.
7.
Negotiate
and
structure
the
right
Deal
Agreeing
an
aspiration
value
deal
requires
brinkmanship.
This
takes
understanding
of
the
other
side’s
motivators,
and
the
ability
to
“walk
in
their
shoes”.
A
good
lead
advisor
will
ideally
create
an
auction
to
drive
value
but
also
be
able
to
analyse
which
big
points
to
win
and
which
smaller
ones
can
be
lost
to
secure
optimum
terms.
This
is
best
achieved
in
a
non
adversarial
environment,
where
listening
creates
understanding,
but
with
very
clear
presentation
of
the
alternatives
and
key
selling
points.
Your
advisor,
ideally
who
will
have
been
involved
from
the
very
start
of
the
project,
will
lead
the
strategy
and
map
out
how
best
to
leverage
best
advantage
in
negotiations,
offsetting
weaknesses
and
playing
to
strengths.
Timing
and
effective
delivery
are
critical
to
create
a
win/win.
At
the
same
time
there
are
increasingly
complex
deal
structures
with
earn
outs
and
deferred
payments.
Considering
how
best
to
protect
these
positions
is
also
critical.
Your
lead
advisor
will
also
consider
the
tax
position
and
create
a
detailed
heads
of
terms
that
creates
clarity
between
the
parties
increasingly
the
likelihood
and
speed
of
a
completion
once
agreed.
8.
Project
manage
to
completion
A
good
advisor
will
orchestrate
all
the
parties,
create
a
timetable
and
manage
the
project
to
completion.
They
will
also
anticipate
and
circumnavigate
issues.
Deal
fatigue
or
worse
failure,
can
result
if
a
poor
dialogue
occurs
once
terms
are
agreed.
The
parties
need
to
continue
to
listen
and
aim
at
a
win/win
transaction.
Your
advisor
will
facilitate
this,
liaising
with
all
other
advisors
(legal,
tax,
financial)
through
to
successful
deal
completion.