The journey you take when starting your own business and overseeing its growth is very similar to the path we take as financial planners to meet your long-term goals.
The pressure of keeping your business moving forward can sometimes get in the way of the nitty gritty. But when the day comes that you want to sell up, you’ll want your business to be as valuable as possible.
There are plenty of little steps you can take to maximise your company’s value in the eyes of prospective buyers.
There is one entrepreneur in particular that can teach you a whole range of lessons about the journey of a small business owner, as they work to grow their profits and achieve their long-term aims — his name is Walter White.
It might seem a bit absurd to consider Breaking Bad a template for maximising your business’s worth, but the framework is there.
Read on to discover six ways you can improve your business to maximise its value and leave yourself being able to exit on your own terms.
1. Make sure your accounts are detailed and up to date
When Walter White decided to ditch his life as a high school chemistry teacher to pursue small town meth production, he had to come up with a way of laundering his money. He did so by purchasing a car wash so he could show accounts registering his profits and earnings.
Clear and detailed records are a sign of a good business. As is corporate transparency, which will be much easier for your legitimate business than Mr. White’s venture.
It will help not only speed up a sale but also inspire confidence in potential buyers, which will increase your business’s value in their eyes.
Your accounting system can showcase steps you’ve taken to make your business run tax-efficiently, signs you have consistent revenues and growth, and a record of all your client and supplier contracts.
2. Optimise your margins and cashflow
You want to be able to show potential buyers that your business is profitable with healthy cash reserves, strong margins, and a regular cash flow.
It shows that your business is stable and has longevity.
When Walt first teamed up with Jesse to cook meth, he quickly learned that Jesse’s process was bloated, inefficient and full of redundancies. He came in, made changes, got hold of proper ingredients, and streamlined the production process.
Soon, they had a far better product and a more efficient business model.
You cannot maximise business value without at first focusing on working out any inefficiencies and proving that your current model is successful by detailing margins, and both current, and future cash flow.
However, don’t mistake cash flow for revenue. Buyers want to see cash as it is a sign of growth and stability. Healthy revenues might appear good, but high expenses could leave your business struggling for cash.
3. Reinforce your existing management team and support your long-term staff
Ensuring your company is set up for a smooth handover and isn’t dependent on you as an owner will likely increase its value. At the end of the day, they’re not buying the person, but the business.
If the business doesn’t function properly without you in it, then it isn’t a viable option to buy.
You will want to ensure that you have built up a strong management team around you that know the business inside out and will be able to maintain key systems and processes during the transitional period.
Making moves to retain long-term staff members will also help show signs of stability that will be appealing to potential buyers.
Finally, you could help by offering to work in a part-time consulting role during the transitional period if the buyer is open to it, in order to ease the process.
One of Walt’s fatal errors was not putting enough faith in his staff. In particular, his dealings with Jesse and Gale. If he had, maybe things would have worked out differently.
4. Ensure any patents are secured or you remain a market leader for your USPs
Walt understood how important maintaining your competitive edge and control of your USP is to a successful business. The key to his empire was his meth formula and his skills as a cook.
If your business relies on any products that you have created or specific USPs, you need to make sure that you have the correct patents in place to protect your business.
If you have a unique USP that isn’t something you can patent, you should showcase clearly how you have maintained your lion’s share of that particular market and how you plan to keep that competitive advantage.
It will probably be a key reason for potential buyer’s interest in your business.
5. Don’t stagnate — invest in the business right up until your sale
If you’ve mentally decided to sell your business and have set your eyes on exiting or perhaps even retirement, it can be easy to become complacent.
You might not see the benefits of pouring capital back into the business to improve it, instead of extracting every penny you can.
But a business that seems outdated, unloved, or in disrepair, can send alarm bells ringing for buyers, especially when they start adding up all the costs of getting things back up to speed.
Walt understood this lesson. He was constantly pushing his methods and his equipment forward. Once he partnered with Gus Fring, he had access to a state-of-the-art lab that was set up for industrial levels of production.
Keep investing in your business assets. This can also be a tax-efficient move as you can utilise your Annual Investment Allowance to potentially work round corporate taxes.
6. Work with a consultant to develop a long-term written business plan
The old proverb “two heads are better than one” still carries weight today.
Walt never got to exit his business on his terms. He didn’t get to keep his millions and head off into the sunset. Partially because one of his great flaws was his inability to work with others or see another point of view.
Your business is your baby. You created it and nurtured it. But don’t be too headstrong to think you couldn’t benefit from the contributions of others.
Consider tapping into key advisors such as accountants, solicitors, bankers, or financial planners to identify any potential issues within your business that might put off prospective buyers.
They could all have their own unique ideas and contributions that will ultimately maximise the value of your business before you make that eventual sale and get to exit on your terms.
Get in touch
Getting the formula right for a successful sale can be tricky business. Make sure to seek professional advice to help guide you through the right steps and help you maximise the value of your sale.
If you’d like to discuss anything you’ve read in this article further, please contact us by email at info@grey-parrot.co.uk or call us at 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
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