Pictured L to R: Gary Mahon and Paul Bachy from e-learning technology firm Enovation.
Putting strategies in place to make your company sale-ready is good practice, even if you plan to hang on to it.
“As soon as you have your marketing plan and your sales plan, do your exit plan,” said Chris Winning. Winning set up Corporate Care Relocation 20 years ago, which settles families being transferred to Ireland by multinational companies. Five years ago she was approached by a prospective buyer — she turned them down but it got her thinking.
“When you’re in a service business, all you are selling is time, so you really have to start looking at ways of building value into the business,” said Winning.
Based in Cork, she opened an office in Dublin to give the business a national reach. Quality standards were increased, the company’s profile raised and staff trained up. “I began making sure senior staff sat in on all calls to me,” she said. “Some principals can’t take annual leave because their business revolves around them. When I managed to spend 13 weeks out of the country, I knew I had something to sell.”
She did so last year, at a significant premium to previous approaches. “Too many business owners can work for 20 years in a business and have nothing to show for it,” said Winning. “You’ve got to be thinking about your exit, and building value, all the way through.”
“It can take five years to prepare a business for sale and to get to a valuation. Confidentiality is a really important part of the process but can be very hard to maintain on a small island like Ireland — so do this work early on, while no one is looking.”
Accountancy Crowe runs a business value builder programme, which focus on strategic development, which may, or may not, lead to a sale.
Gary Mahon and Paul Bachy are not looking to sell their e-learning technology company Enovation, which is based in Dublin and employs 60 people. “It’s not for sale,” said Mahon, who is on Crowe’s business value builder programme.
“We’re looking to build value because we’re committed to growing the business,” he said. “The process allows you to step outside your business and take a helicopter view of it.”
For Enovation, it has been about building the management team, “getting the right structures in place, and to look at the options about how we might grow the business in the future”.
“At the end of the day, what you want is to build shareholder and stakeholder value,” said Mahon. Ensuring a business is sale-ready at any stage is simply good business practice. It also means that if and when you do sell, you don’t lose out.
“A lot of companies think it’s the right time to sell but leave a lot of value on the table,” said Gerry O’Reilly, a corporate finance partner at Crowe.
Grooming your business for sale enables you to see your business through the eyes of a buyer. Financial performance is key. “Is it profitable, has it got growth prospects?” asks O’Reilly. “Buyers are interested in scalability and a steady recurring income is far more valuable than high-valued once-off activities.
“They will look for a business that throws off cash too, because generating cash de-risks the business. A business with good cash flow is more likely to survive than a profitable one.”
A business that requires a lot of working capital to grow — such as one with lots of kit in need of upgrading — is “a drain, even if it is profitable.”
Figure out where your business sits on the toll bridge to brain surgeon scale. “A toll bridge will sell for 20 times its profit. A brain surgeon has no business to sell. Every business is somewhere on that scale from 0 to 20.”
The higher up you can push your business, the greater the value. “Look at restructuring or remodelling if necessary. If you are a retailer, it might be that your online operation has the most opportunity to scale.”
Too great a dependence on a key supplier, customer or employee is a risk. “The other big value-destroyer is a business owner wrapping the whole business around them. The most successful entrepreneurs talk about making themselves redundant.”
In the marketplace, you may not have a dominant position but at least be “focused and relevant to your space in the market, and recognised as a leading supplier,” he said. “It’s about building a robust business so it’s all good stuff, even if you’ve no plans to sell.”
Eunan Ryan is currently on Crowe’s programme. Again the aim is not to sell his business, Cult Drinks, but to ensure he is maximising its potential. “It’s not for sale but I am getting to an age where I need to prepare for an exit and that’s something you have to build up to,” said Ryan.
The 10-year-old business has a range of drinks brands including Piranha Schnapps, Jack Ryan whiskey and the alcopop Fat Frog. It is about to launch a new brand, Heytesbury Rum Collection.
Crowe’s programme has helped Ryan to look at the business more strategically. As a result, it is better leveraging its distribution network by increasing its staple of brands from five to 12, has opened its own bottling facility and strengthened its management structure, growing staff from three to eight.
It has secured intellectual property such as trademarks and documented what had previously been verbal distribution agreements. “Putting all these in place has allowed us to focus on driving the business forward,” said Ryan, who is in his 50s. It has also been about getting “the back office right, which for years we probably didn’t.”
The work is paying dividends, with turnover up 40% in the past two years. It’s all good business practice and a better business gives him more options for the future.
“My father died at 62. I’d like to know that if I wanted to retire at 62, that I could. But to do that, you have to have something tangible to sell,” said Ryan.
Extract of article written by Sandra O’Connell on 17 June 2018 for The Sunday Times
If you would like to find more about how we can help business owners build long-term value visit our Business Value Builder page or contact Gerard O’Reilly.