Looking at your business through the glasses of potential buyers you see more

As an entrepreneur, are you considering eventually selling your business? Then of course you want to know the value of your business, as well as what aspects determine this value.

At the same time, it makes sense to familiarize yourself with the reasons why buyers want to buy your company, so that you are well prepared for the negotiation phase.

Therefore, look at your business early on through the eyes of potential buyers to assess its attractiveness and areas of concern. Factors that play an important role in this include:

• Industry trends and developments;
• Market positioning;
• Product Portfolio;
• Customer and supplier base;
• Innovativeness;
• Organization and processes;
• Management and personnel;
• Laws and regulations;
• Risks and dependencies;
• Financial performance and growth prospects.

In the period of sales preparation, you can work towards an optimal sales result, which is not only aimed at increasing the value but also at better conditions. We delve into 3 components:

1. Optimize operational value drivers

Operational value drivers contribute directly to value and affect day-to-day operations, resilience of the revenue model and future growth. Depending on the business model, these include:

• Customer satisfaction: Businesses with satisfied, returning customers have stable revenues and less risk of customer turnover.
• Efficiency of processes: KPIs such as inventory turnover rates and production and logistics efficiencies provide insight into how the business is operating underlying and how easily it can scale up.
• Innovation: Entrepreneurs who continually adapt by innovating (digitally) and developing new products or services, for example, are attractive to buyers.
• Employee satisfaction: In the time of staff shortages, crucial.

2. Reduce dependencies

A major downside risk for potential buyers is dependence on yourself, a limited number of employees, customer or supplier. The following are ways to respond to limiting this:

• Diversify the customer portfolio: Expand the sales organization so that revenue can be spread across a large number of customers and the revenue model does not depend on a limited number of customers.
• Build a strong management team: Make sure the business can continue to operate without you.
• Digitize and automate processes: Implementing an ERP system can automate various business functions such as inventory management, planning and purchasing. An ERP system can manage all data centrally, making information easily accessible and increases efficiency. In addition, the availability and capture of accurate information is important to potential buyers.

3. Optimize financial performance and information

Potential buyers want to see that finances are not only in order, but also provide a stable and transparent picture that can be managed. Periodic dashboard and reports are crucial here.

In acquisition processes, buyers like to have insight into historical and expected financial KPIs:

• Revenue growth and gross margin by activity and customer group;
• EBITDA: In acquisition processes, bids are often made on this yardstick;
• Free cash flow: the cash flow realized after all operating expenses and investments in fixed assets and working capital have been paid and is available for dividends or loan repayments;
• Working capital turnover rate, consisting of turnover rate of accounts receivable, inventory minus accounts payable. The higher the turnover rate, the more efficiently the business uses its working capital;
• Return on invested capital. The KPI that matters financially to potential buyers and calculates the free cash flow relative to the capital invested. Value is created when this rate of return exceeds the claimed return.

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Conclusion

In summary, successfully selling the business requires a strong focus on both financial and operational value drivers. By doing so, you increase the attractiveness and value of the business. Start applying these in a timely manner so that value can be maximized. Therefore, assess your own business through the eyes of potential buyers so that you are always ready when an opportunity arises.