Article by Mark Ridout, director of R A Valuation Services Ltd
Although it may well be something as mundane as the availability of adequate car parking that determines whether potential clients frequent a practice or not, there are steps that can be taken by the owner to increase the potential value of any business during pre-sale preparations.
As with selling a house, so called ‘kerb appeal’ is vitally important. When a homeowner wants to sell their house, they may paint it, fix up a couple of things that needed doing during the last few years, and polish the taps. Simple, and obvious, but unarguably effective. So too with business owners, they can improve the value of their business by making a few changes. First impressions count and can be the difference between a successful sale and a lost opportunity.
Profit, and especially profit growth, is the most important factor. Clearly, financial performance – and growing trading profit in particular – will validate that the business is performing well. As an example of the dramatic effect of profit growth on business value, in a recent one-year update valuation of a practice undertaken by R A, sales had increased over the latest year by an insignificant 5% but purchases were maintained at the same level and overheads cut by 5%. The resultant goodwill was valued at over 40% higher than the previous year, solely as a result of these changes
In the day-to-day running of a typical business, this equates in simple terms to a combination of:
The value of a business should not but be underestimated but should also be realistic. Beware valuation figures artificially inflated by a transfer or sales agent eager to sign up a practice to a sole agency agreement; potential buyers will eventually recognise an over-priced business for what it is.
Concentrate on the points listed above. Enlist professional help to organise and plan. Listen to the experts. Most importantly, be prepared with clear, up-to-date accounts showing an attractive and well-documented track record of profitable growth. Like the homeowner, polish and a fresh coat of paint will help with the kerb appeal. But remember that the bank will want to see that any potential buyer will be buying something well placed to pay back a loan. Ultimately, it all comes down to profit. Get all of the above right and the financial figures will speak for themselves.
For more information on R A Valuation Services, visit: www.ravaluationservices.com
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