What do buyers value? If time and effort is going into building the value of the business, it is essential to understand what the buyer will value. Here are some of what I consider to be the key contributors to value.
As touched on earlier, having an enduring management team – apart from the possibly departing owner(s) – will certainly contribute to value. It is essential that the business seems to have a life of its own independent of the owner(s).
Predictable revenues, for example, revenues based on subscriptions and renewals as opposed to revenues dependent entirely on new sales, will usually result in a higher value being given to that revenue stream by a potential buyer.
When you are developing your new business propositions, there is nothing quite like getting into the mind of your client or prospective client and thinking: “Would I buy?” and, if so: “Why?” If the “so what?” test cannot be satisfied through the simple use of the “which means that” phrase, then something is wrong. In other words, it is about articulating benefits rather than features.
When targeting new initiatives at existing or prospective clients, it is important that the clients are the right type. A judicious bit of segmenting never went amiss when looking to get maximum payback for the effort expended.
Financial advisers know only too well that if seeking to do business in markets where advice is explicitly charged for – either directly or through the product – then it is important that the clients targeted are those who will value and have the capability to pay for the services being offered.
For financial advisers, the dilemma in a hard market is ensuring that they have the resources and support they need just to do business compliantly, with risk properly managed but without pushing up the cost base too much. As we are all aware, every £1 spent that does not directly contribute towards bringing in revenue is one that diminishes profit. Securing what you need at the lowest cost inevitably leads to serious consideration of effective use of technology to secure the performance support, knowledge management and education you need.
When any business sale is made or being discussed, business owners will have more than half an eye on tax minimisation. Now is a comparatively good time for this. Business assets taper relief offers a tantalising maximum 75 per cent reduction in the capital gains made by sellers. This would have the effect of reducing the effective rate of tax for a 40 per cent taxpayer to 10 per cent. As I have said before, this is undoubtedly reducing the incentive to go offshore, especially given the limitations on what a UK-resident taxpayer can achieve in any event.
A business that has a genuine brand and a reputation for quality is one that is not only likely to be delivering sustainable and improving revenues but also one that is likely to attract the interest of buyers. If a business can add to its reputation or brand the capability for leverage or scale on its core competences and can show significant growth potential, this will make it particularly attractive to a prospective acquirer or investor.
The more of these qualities that can be present in a business, the greater its value is likely to be, especially if it is in a market sector that is growing and relatively stable without the threat of significant negative Government intervention, either home country or European, that will minimise the opportunities for growth and profit making.