Frequently
Asked Questions

Frequently
Asked Questions

You will most likely need a business valuation in the lead up to selling, but there are other circumstances when a value is necessary.  These are;

  • Where one shareholder wants to sell their shares to other existing shareholders, often driven by ill-health or retirement.    
  • When a valuation is needed to confirm levels of Keyman or other insurances. 
  • As a benchmark exercise before and after changes in a company to monitor success. These might be structural changes, rapid expansion or other reasons.   
  • If you want to gift shares to key employees and team members.  
  • When going through a MBO or MBI (Management Buy Out or Management Buy In). 
  • When transferring from a privately held company to an Employee Ownership Trust (EOT). 
  • Other reasons like divorce, probate and incapacity to work.  
There are numerous methods for business valuation, but the most commonly used for the purposes of exit planning and business sales is a multiple of profits.  However, certain circumstances do demand other techniques such as a high growth SaaS business where turnover may be used.

Whilst there will always be an average, it is only ever a rough guide. By its very definition, an average includes the very best of business to the very worst of business and from the smallest micro businesses to multinational Plc’s.  Ultimately, buyers will determine the multiple and price they are willing to pay for your business. Our role is to help you identify the factors in your business which will either increase or reduce your likely multiple.   

Initially, a simple list. Financial accounts, details of any business premises, what prompts the need for a valuation and then a 30 minute conversation about the business. We then add our research of current market conditions and buyer trends to arrive at the valuation.  

It depends on the complexity of your business or the sector you operate in, but we can generally turn a valuation request around within a week.  

As value is driven by profitability in most cases, you can increase turnover and net profit. However you should also consider the risks and potential in your business for a buyer, which is why we employ the Value Builder methodology. This focusses on the 8 key drivers of business value and identifies which levers you can pull to influence the multiple a buyer will be willing to pay. You can calculate your Value Builder Score for free at any time on this link: https://score.valuebuildersystem.com/uscita-solutions-ltd/paul-dodgshon

A business exit strategy is simply the plan you make to leave your business. All business owners will leave their business eventually. When they choose to do that and how the transition will be implemented needs to be planned or your exit might not deliver the result you need, whether that be in terms of money, legacy or your employees. Furthermore, business owners who take time to create an exit strategy achieve an average uplift of 71% on their sale price when compared to business owners who fail to plan.

That’s why it’s important.  

Not accurately. Turnover is only part of the story and buyers will value on profits. We have a full article on the topic here: https://uscita.co.uk/turnover-business-valuation   

The simple answer is no, you can do this yourself if you have the time. A good broker will foremost protect your confidentiality, as well as bringing their experience in marketing, negotiations and deal structures. They will also respond to and deal with enquirers, letting you get on with running your business. Taking an eye off the ball, whilst you try and juggle too many things can be very costly. A strong vetting policy will also ensure only the strongest potential buyers meet with you. Curious window shoppers are removed from the process.  

Yes, always. But don’t just restrict yourself to like for like trade buyers. There may also be ‘seasonality’ too.  In a booming economy buyers are willing to take risks on a business which doesn’t perhaps fulfil all their requirements in the belief they can turn it around.  In times of recession-like events, buyers are much more cautious with their investments. They are less willing to take risks on anything but the best businesses for them. They become more exacting in their acquisition searches. Buyers are always out there in all sectors, but you need to ensure your business leaves no doubts as to whether it is a good purchase or not.  

We appreciate that keeping a business sale confidential from employees, customers, suppliers and competitors can be essential for some businesses. Once we understand the specific concerns for your business we will use a selection of tools to ensure we protect your business during the sale process.  

As with many things, business sales have transferred to various online portals, the largest of which are www.business-partnership.com www.businessesforsale.com  and  www.daltonsbusiness.com . We also have access to more specialist portals, where serious acquirers and their advisors look for opportunities. On top of this we will pull together outbound marketing lists from various data sources and utilise social media and our wider business network to reach potential buyers.

Earnout or earn-out refers to a pricing structure in mergers and acquisitions where the sellers must “earn” part of the purchase price based on the performance of the business after the acquisition. 

Source: https://en.wikipedia.org/wiki/Earnout 

In many negotiations for the sale of a business, the buyer will ask to pay for the business in instalments. The element of the purchase price which is paid after completion of the sale is called the ‘deferred payment’ or ‘deferred consideration’. These payments are not conditional upon the businesses performance after sale. Beware that buyers sometimes refer to deferred consideration, when they actually mean earn-out but wish to sometimes portray their offer as being better that it actually is. See vendor finance as well.

Source: https://ballardsllp.com/insights/business_sales_deferred_consideration/

Vendor financing is a financial term that describes the lending of money by a vendor to a buyer (i.e. a deferred consideration). In simple terms, it is like a garage lending money to you that enables you to buy a car from them. In business sale terms is often seen in MBOs (Management Buy Outs where the parties are well known and trusted by each other) or LBO’s (Leveraged Buy Outs where the parties do not know each other). Take care as LBO’s carry significantly more risk and you should take advice before agreeing to an LBO buyer.

Source: https://www.investopedia.com/terms/v/vendorfinancing.asp 

Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In business sales, there can be financial, legal and commercial due diligence. The former looks at the company’s financial records, the second looks at everything from the lease on premises to employment contracts to the Memo and Articles of Association, insurance and environmental matters for the business. Lastly, commercial due diligence examines the market place and your businesses offering within it. It seeks to confirm there are no issues with customers, product offering or suppliers. Overall, due diligence is the opportunity for the buyer to examine such information in detail to ensure they understand the opportunity and risks before entering into a formal contract of purchase.  

Source: https://www.investopedia.com/terms/d/duediligence.asp  

HOTs document will only be legally binding with regards to confidentiality, exclusivity and costs, but outlines the commercial terms of a deal that’s been agreed, subject to due diligence. The key function of HOTs is to confirm the commercial terms of the deal. This includes who is buying what, the amounts paid and when they are due, vendors role post sale as well as various other matters. Whilst not legally binding, unless something significant arises in due diligence, these terms should remain unaltered and will be used by the solicitors to draft the contract of sale.

Letter of Intent is an American term which is appearing increasingly in online articles. 

Source: https://en.wikipedia.org/wiki/Heads_of_terms

These are documents prepared by a broker or company to generate interest from potential buyers. The CIM is designed to put the selling company in the best possible light. It provides buyers with information on which they will base their offer and acts as the starting point for due diligence.

Source: https://en.wikipedia.org/wiki/Pitch_book 

SDE is a term mostly used in North America as a financial metric to determine the true historical benefit to the owner of a business. Calculating SDE is a way to “normalize” a company’s profits so it can be more accurately compared to the earnings of other companies not owned by the same person. See also adjusted EBIT or EBITDA as the UK equivalents. 

Source: https://corporatefinanceinstitute.com/resources/accounting/sellers-discretionary-earnings/ 

An indicator of a company’s profitability calculated as revenue minus expenses but excluding tax and interest.  

 

Source: https://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes 

A widely used measure of corporate profitability which stands for  

Earnings Before Interest Tax Depreciation and Amortisation. It is the profit that a company makes before these specific costs are taken from it.   

Source: https://en.wikipedia.org/wiki/Earnings_before_interest,_taxes,_depreciation_and_amortization 

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