Preparing your business for investment or acquisition

A key question we ask our clients is “What does success mean to you?” The answer can change over time as personal and business circumstances change, so it’s important to ask this question on a regular basis. However, most business owners plan on exiting their business one day, hoping to achieve the maximum possible valuation when that day comes. If you are starting to think about exiting your business, it’s usually best to start the planning and preparation at the earliest possible time.

Below we look at some of the key factors that buyers and investors consider when thinking about acquiring or investing in your business:

Financial Performance
An investor or potential buyer wants to know that they will get a strong return on their investment. The best and most quantitative way to do this is by looking at the financial performance of your business. Investors get very nervous if they feel the owner does not have a good handle on their business’s financial performance. Different investors may have different requirements, and a good accountant can help you to prepare and present your key financial data in an optimal way.

Uniqueness and ability to defend your position in the market
If your business can easily be copied or ripped off by a competitor or new entrant, it’s a risky and unattractive investment. Legendary investor Warren Buffett talks about businesses having a “moat”, which essentially means they are difficult to copy. This ‘moat’ could be Intellectual Property or a certain patented product for example – but to ensure the maximum valuation, it’s essential you have one. A couple of good questions to ask are: “What makes this business different?” and “Why would someone invest in / buy my business instead of one of my competitors’ businesses?”

Market size/growth
The best businesses are outward-looking and customer-focused (as opposed to being inward-looking and insular). Outward-looking businesses have their ‘finger on the pulse’ of their market and industry, keeping a close eye on the latest stats, figures and trends. Buying or investing in a business is typically a long-term commitment, so investors or potential acquirers acquisitors want to know the growth rates and trends in a market and industry.

Your background/pedigree
This is often more important when you’re seeking investment (as opposed to an acquisition). Investors feel more confident working with someone who has a proven track record. If this is your first investment round and/or your business is relatively new, having a strong background and pedigree is particularly important (even if that background is in a different industry). The pedigree and skillset of the owner is sometimes the key determining factor for an investor.

Your business model
What business model you are currently using to generate sales and revenue and run the business? Why is that the optimal model for your business? Potential investors and/or buyers want to know that your business model is both robust and scalable.

Selling your business is often complex and time-consuming. A great adviser can help you to sell your business at the maximum valuation and keep as much money from the sale as possible, by:

• Discussing your key objectives
• Exploring all the available options
• Helping you to choose the optimal sales strategy
• Working with you on a realistic valuation
• Assembling and presenting key financial information
• Minimising your tax liabilities from the sale
• Assessing (and recommending) potential investors or buyers
• Drafting paperwork
• Support with negotiations

Selling your business or receiving investment has huge implications, so it’s best to seek out an advisor that is highly experienced in supporting businesses through investment rounds and/or acquisitions.