How to Get the Most Money for Your Business

Understanding Value to Avoid Underselling 

What happens when you get an unsolicited offer that looks good?  And you start thinking about what’s next and how accepting this offer will work?  You wouldn’t be human if, in your mindset, your business is sold and you’re already spending the proceeds without thinking “Am I getting the best value here?”.   

Here’s how one of our clients looked at an unsolicited offer and walked away with renewed vigor and confidence in their business. 

Where did they start? 

Outside of the tech world there aren’t many businesses that can generate a lot of value in a short period of time with just the founders involved.  When the founders of a specialist professional services advisory business called me out of the blue and asked, “We’ve got an offer, we’re not sure what to do with it – can you help?”  Of course, the answer is yes.   I had no idea what I was going to be presented with, so an initial assessment is always the first step.  

An unsolicited offer can be a great thing, but it does come with some downsides.  Mainly lack of preparation.  Selling a business even when you do not need to do the hard work of finding the right buyer is still fraught with all the logistics of heads of terms, due diligence and the final sale documentation.   

What was the challenge? 

Selling a business is an emotional rollercoaster – especially if you don’t know your business value AND you haven’t thought too much about what you really want out of a deal. 

In the first instance I needed to ask a few questions to understand where we were starting from: 

• What does the business do? – turns out the founders have “created” a new industry sector and become expert in it.  This was a major factor in assessing the initial offer. 

• What would make a good deal for you both? – this needed some thinking about because they hadn’t thought about the details before.  They hadn’t anticipated a direct approach. 

• What do your numbers look like? – this was an area of concern because though they had a finger on the cash flow pulse, they didn’t have easily available management accounts, or any ideas of what value was available in the business opportunities for the buyer.   

• Who do you employ? – easy answer, just the two founders.  This was being run as a lifestyle business even though it was in a fast growing, new sector of an old industry.  Neither of the founders thought that they wanted to build a team. 

This business was clearly a start up with great potential.   

It was important to get a grip of the numbers AND understand what the founders needed out of it.  This was especially important given the initial offer letter included a long earnout period and considerable deferred consideration.  The top line number might look attractive but when you break it down what does it mean in real terms? 

With an offer on the table there were 3 main elements to look at: 

1. Does the offer achieve the desired outcomes of the business owner? 

2. What is the business worth?   

3. If we don’t accept it, what do we do next? 

Step 1 – Is it a good offer? 

Working with the business owners, we analyzed the offer in more detail for the “fine print” which covered continuous employment of the founders, timing of the payments and how the business would operate after transfer of ownership. 

Then the founders were sent away to think about what an ideal deal would look like for them and their families.  This meant looking at what we call “red lines”, which means what won’t you accept now and in the future.  This might have been a little trickier at this point because the headline number for the offer price was already in their heads – and it was a difficult number to walk away from if you didn’t look at the details. 

Any offer needs to be broken down into a few “headlines”: 

1. What am I getting on day 1? 

2. When do I get the rest? (timing) 

3. What stops me getting the rest? (conditions) 

4. What do I have to do after the sale goes through? (employment, loss of control, revenue, profitability, handovers) 

In this case the initial offer had a good headline number, but the timing of the payments did not give the founders what they were ideally looking for on day one.  Additionally, the terms of on-going employment were very low salaries compared to the market average AND a loss of control of how the business measured profitability.  This is important because the deal was also set up to only pay out future deferred payments subject to operational performance.   

Already the offer isn’t looking so rosy – but could it be negotiated?  Work started on presenting the business value to the buyers.  We focused on the numbers and what they could mean to the business if the opportunities were taken up. 

None of the work was wasted and it helped the founders make the right decision for them. 

Step 2 – What is the business really worth? 

Without regular management accounts, the founders initially presented outline numbers that made the initial offer seem healthy enough.  Digging into the numbers and working out where the acquirer could generate more revenues with significant profits allowed the founders to do 2 things: 

1. Identified the real value of the business to this buyer or alternative buyers. 

2. Showed the founders what they could be tapping into if they decided not to sell.  

Looking at the value of the business and digging into the numbers gave the founders a new perspective on their fledgling business and set a higher expectation for the future of the business AND any acquisition offers that might come in.  It also gave them much higher confidence in pushing back to the acquirers on the price and mechanism for concluding the offer. 

Ultimately the terms of the offer were too low and on inadequate conditions for the founders. Going back to the negotiation table in a position of strength allowed the founders to make decisions with confidence rather than fear of missing out.   

They made the decision that walking away from what initially looked like a “sweet deal” was the right thing to do for them.  They both recognized they would have had a lot of regret in taking the offer as it stood.  And it helped them focus on the next step with renewed energy. 

Step 3 – What next? 

Often when you get an offer and take the time to consider it, maybe even sign heads of terms, you’re invested in the deal going through.  It is an easy thing to get caught in the maelstrom of the sale process.  Very quickly this can become all-consuming and exhausting so the idea of walking away becomes unpalatable.   

In this case the founders had real clarity on what their business was worth and what a good deal would be for them.  They had highlighted ways of increasing the value of the business AND realised that they had the energy and resources to hire and build a team.  This was something they had been resisting because they didn’t have clarity on their numbers and felt that hiring would bring more demands on their time.     

Since turning down the offer they’ve been building more value into their business.  Now they have built a new team which is constantly expanding. 

How I supported the client: 

• A detailed analysis of the initial offer and what it would look like for the founder’s future. 

• Review and reconfiguring of the numbers to present the value of the business to the potential acquirer (and any other buyers that may approach) 

• An alternative plan for walking away from the offer. 

• Clear strategic planning for the business to increase value. 

• Succession planning tools and support for the owners 

And the results of all this?  You might think that not getting a sale would be a failure, but it was the complete opposite.  It presented the founders with a new opportunity to make their business worth a lot more today and tomorrow.  Here’s how: 

Business Value: 

The business identified its true value to a group of potential acquirers and enabled the founders to get clarity on their terms.  The business has an exit strategy for when the founders want to sell – including identifying potential buyers and how the business would work with them to increase the acquirer’s investment. 

Team: 

The founders got clear on who they need and how easy it would be to make new roles economically viable very quickly whilst also mitigating the risks of the founders being the only people in the business.  New team members joined an enthusiastic paid of owners who have plans to implement share options and profit share.  All of this makes the business more resilient, more valuable and more fun to run. 

Financial Reporting and Strategic Planning: 

The business now has a comprehensive management report which show the key areas of the business – meaning there is greater visibility of how the business is growing and where to focus their energies for more value.  There are strategic plans for the growth of the business which is doubling its revenue year on year in a sustainable way with increased profitability.   

With performance information, the founders can drive the growth of their business and create forward momentum that has become part of their business culture.   

Results In Brief: 

• Business Value recognized as at least double the initial unsolicited offer. 

• Business Owner now very happy to build a team and enable them to grow without working longer hours, which had been their big fear. 

• Ready to go to market when another unsolicited offer comes again – or when they want to exit.  They are in control. 

• Planned incentive scheme to encourage employee retention and future business growth. 

• Thoroughly enjoying their business as it grows!   

Want to get these results for yourself?   

Contact Christine by email or alternatively you can book a call with a multi-award winning Business Mentor, author and speaker. She helps business founders get their businesses exit ready so they can enjoy a happier, richer future.  She saves them THOUSANDS and increases the value of their businesses by MILLIONS.