How to Maximise the Value of your Business – Part 3 – People & Management

An article by Peter Watson, Prism Corporate Broking

Privately owned businesses often share one important characteristic – a dependence on the owner manager.

For any acquirer this is a key element that needs to be understood and accommodated, and may well result in either a lower valuation, or a deal structured to ensure their continuity. Where the owner wants to continue working in the business, and is seeking a sale to help move the business forward, this can be a win-win, but in that instance they are likely to retain a significant shareholding.

If however they wish to exit the business it will be necessary to reduce their dependence and this requires some planning. Bringing key individuals into the management team can be a good start, but a late attempt to employ a successor is unlikely to convince potential acquirers and may simply have the effect of reducing profitability in the run up to sale.

It can be helpful to consider granting certain staff share options – tying them into the business and minimising the risk of losing them at a critical moment in the sale process.

Taking a chunk of time out of the business, perhaps in a sabbatical of sorts, will allow the owner a chance to contemplate life after sale as well as testing the management team. A successful spell out of the business will also provide useful evidence to a buyer that the transition is already working.