There is a lot of advice on what makes a business sell and what should be in place to maximise your price.
One that sometimes doesn’t appear on some advice pieces, perhaps its taken as ‘read’; but the most important point that any purchaser is looking for first and foremost is the sustainability of the sales.
In one recent sale, the purchaser enquired which customers were on contract, which were on a framework and what agreements were in place. The answer was none!
This was an £8.5m business that relied on the phone ringing each day to keep the business coming in.
When we drilled down into the client profile and looked at the top 20 clients over the last 3 years, and found the following:
• The average working relationship was 11 years
• Only 10% of top 20 clients turnover was below £20 million and many were multi-nationals
• 75 % of the top 20 clients changed each year or more simply 45 companies made up the list over 3 years
• No one client contributed more than 10% in sales
• Client relationships were split across 25 different team members
• Their product and service is required whatever the economic climate
• Demand is as high as its ever been
I have to say, ‘What a great business’.
All to often we focus on the value of contracted work and rightly so, it does bring that certainty of business. The problem is it has a set review date at which point there is a possibility of losing the business.
In fairness I had the unfortunate pleasure of buying a business in 2007, much of the business was contracted with large corporate’s and one by one the review dates came and went, some we won some we didn’t. Whilst in our original company, little work was contracted and I know for a fact many of the same customers are still there today, without a contract.
So contracts aren’t the ‘be all and end all’ , agreed they do give certainty but only for a period, it is much more down to relationships, the people, the company ethos, the sustainability and spread of sales.
We would be delighted to help any company with the above client profile and we would sell it for a minimum multiple of 4 times the operating profits.
Whereas if a business has a particularly high concentration of work from a few customers, or work is on an adhoc basis and there is little repeat work, we would generally struggle to sell a business of this nature.
At The Business Board, we only take on businesses that we are able to sell, which results in a high success rate in the sale of companies. Our ethos is to keep on marketing until we find the right buyer for you, but we do need the right ingredients from you to ensure we can achieve a successful outcome.
Feel free to give us a call on 0845 337 3327 to speak to one of our consultants.