Prepare for Investment or Sale
Two important considerations for many business owners are whether now is the right time for external capital to grow the business, or whether now is the time to think about selling the business outright.
Interest in either means it’s time for the owner to start to think about the business as a thing with a value, and time to shape the business for a desirable market valuation. Valuation of a business is a process that can range from highly emotional to highly logical.
Let's start with emotional: many owners have a highly emotional idea of what their business is worth. This valuation is often rooted in the exciting idea that started the business, the proven potential for the business, the business’ unique competitive advantage, and the wonderful feedback from its early clients.
On the other end of the spectrum is logic: what has the business proven it can do? At this end are professional accountants who value the business according to logical and clinical EBITDA (averaged over 3 years) and balance sheet formulations.
The real value of the business? Usually somewhere between the two. And more to the point, what someone will pay for it.
OutsiderMD works with its clients (and its accountants) to examine opportunities to enhance the financial valuation of the business, as well as find the nuggets of non-financial value, embedded deep within.
We ask you to spend a few minutes considering our thoughts:
What do investors and buyers look for?
What actually impacts your business’ valuation?
Who will give you money?
1. What do investors and buyers look for?
Investors generally look for value, big upsides, low risk and a way not to be too involved. Buyers look for the same, but sometimes want to be involved, at least enough to know whether the business they are buying will fall apart if and when you leave.
Investors and buyers will consider financial factors: how your P&L and balance sheet have performed over the past three years, what your forecasts look like, the likelihood that your business will hit those forecasts, hidden liabilities, and will most certainly ask you to convince them of all of the above.
But they will also be influenced by the non-financial values of your business, factors that cannot guarantee greater success and a x10 ROI, but which can certainly suggest it.
Investors and buyers want a great story, but they want it to be the truth and they will dig deep to ensure they’re getting it. They will look for certain business health signals, and these signals need to be reassuring.
OutsiderMD will work with you on your business’ unique story, we will help structure your business – financially and non-financially – to maximise its potential value, and get you prepared for this rather large shift in your’ future.
Here’s the great news: even if you ultimately decide not to take on investors, or not to sell, the things we do to prepare your company are the same things will make it easier to run, easier to grow, and more profitable.
2. What actually impacts your business’ valuation?
What, besides your business’ financial performance over the past 3 years, has an impact on your business’ value?
Here are our Top 10 non-financial factors worth considering:
- How dependent is the business on you being in charge of it?
- Is the current strategy appropriate, and is the business ahead of the game in pivoting to where the industry is likely to pivot?
- Can the business grow and scale easily?
- Are the right marketing channels being utilised, and is there potential to move into new markets?
- Is the sales effort working, reliable and scalable? Does it consistently hit its numbers? How quickly can the business bring in new sales staff and get them up to speed?
- How happy are your key people with their jobs? Can one of them run things if you leave?
- How happy and loyal are your clients with the quality of your products, services, and delivery? Are enough of them under medium-long term contracts to buy, and if not, how likely are they to continue to buy from you?
- How successful are you and your management team at managing to plans and forecasts, at getting significant change to happen, at launching new initiatives?
- Is the workplace culture attractive to employees and new recruits? Is it challenging, high performing and accountable?
- Does the business use and reuse its intellectual property (IP) effectively, is it adequately protected, and can its IP be applied to new products, services, markets?
3. Who will give you money?
We love the wonderful simplicity of this question. The simple answer is people who trust you, people who trust what you’ve managed to build, and how well you've positioned it for growth.
But selling all or part of your baby is a very serious relationship to enter into, and not every new investor or new buyer will be a good match for your business. We all want to join with people who will value what we've built, nourish it and take it forward.
OutsiderMD helps its clients profile the types of investors and buyers who match up well with what they are looking for, and the unique nature of their businesses. We help them adapt their pitches to different types of buyers and handle the most likely questions that will arise.
And no, we’re not a dating service.
Even if you’re not sure at this time whether capital raising or an outright sale is in your immediate future, it's never too early to take some early steps, so a quick chat may be helpful. Give us a call or text on +61427788777 or email (mickey.clark@outsidermd.com)…
“Before I got started working out the right business system for me, Mickey slowed me down and asked me to think through a wider range of possibilities:
- Making my order and delivery process more efficient,
- Deciding what systems were needed most at the start, and
- Selecting the best pricing model to ensure maximum profitability.
He was very helpful when it came to coaching me on sales, giving me more confidence and suggesting some interesting prospecting tactics.
Meetings have always been a problem for me. Our one-on-one catch-ups were held regularly, rarely running over time, and always with a highly meaningful agenda.”