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How to avoid reducing the value of your business
The ingredients that come together in the final recipe to create value are multiple and varied. Too often a simplistic rule of thumb EBITDA guide is taken as the gold seal of business value measurements.
A scan through our entire listing of all deals concluded in this sector will quickly indicate that EBITDA and revenue multiples achieved by companies vary over quite a vast range. Yes it is possible to create some statistical averages but then again we can create an average for anything. The question is does it work as a useful guide and predictor.
EBITDA is a factor without doubt but overlaid on top for business owners are a number of potential pitfalls that can destroy the value of your business.
1) Passivity: when a seller of a business is passive, they are likely to fall in to a number of pitfalls. The first is due to the problem of the lone acquirer: Go down the acquisition process with a single acquirer and you end up dependent upon a non competitive auction with only one bidder for the business. This typically happens when the business owner approaches their financial, banking or legal advisors to assist them with the sale of their business. Such professional maybe very knowledgeable in their field and can play their part of bit players in the acquisition sale but sales people they are NOT. The other result of the lone bidder is when the company is approached by a competitive company. Such approaches rarely deliver value. A competitive bidding process also works to confirm the judgements buyers are making about the value they see in a business.

2) Lack of an M&A Strategy Plan: You must have a comprehensive presale plan and get an action plan in motion to maximize your return.

3) Losing Focus: When sellers take their eye off the main ball during the business sales process and devaluation is inevitable. This is when you need a competent M&A advisor

4) Lack of Succession Plan or Management Depth: It is essential that you have an adequate management team in place so buyers won't worry that your departure will reduce the value of your business. Could you currently go on holiday for three months and when you came back all would be well?

5) Know the best buyers: From our experience our clients are aware of less than half of their competitors. They normally believe that they know a much higher percentage than in reality and are very surprised when we explain why their direct competitors are less likely to be the best buyers for their business.

6) Lack of Confidentiality: If the sale of your business is not handled in a confidential manner then your competitors could use the possible sale of your business against you when in competitive bids. The uncertainty of a sale may result in customers and employees leaving you.

7) Inexperienced M&A Deal Making Team: The typical proactive acquirer is an experienced team with professional M&A advisors, lawyers, and industry experts on their side. Lack of a good team that can balance the experience of the acquirer can be very expensive. Can your management team ensure you get a good deal on your business and with deal terms that work for you? Most importantly can your team make sure the deal closes on time and does not drag out endlessly?