How to make the best out of a business sale

SIXyearsagothis month I sold my business. Whilst I was, and still am, very happy about the sale and the price, there are lots of things that I wished I’d known more about in advance of the sale.

Selling a business, for most business owners, is not only a ‘once-ina-lifetime’ experience but also the most expensive thing they will ever sell. There are many, many moving parts and it can be very complicated.

But in any sale the key question is always going to be “how much?” and from a seller’s point of view, how to make that figure as big as possible.

Firstly, you need to understand which multiples or metrics, are used to value businesses in your sector. Often businesses are valued by a multiple of EBIT (Earnings Before Interest & Tax) or EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) or a simple multiple of annual profit, or an average profit over say the last three years. Sometimes it’s a multiple of MRR (monthly recurring revenue) or number of clients.

And there are many, many more. What you as a business owner need to know is which one(s) are used in your sector. Since my sale I have been involved in many discussions both in-person and on my Leeds Business Podcast about business sales and I often hear that “a 3x multiple is standard” for a business sale.

Whilst this may, or more probably may not, be a good starting point. We sold for 6.5x as an example. I know of many businesses that have sold for much higher, and sometimes double-digit, multiples. So how do you get higher multiples than the ‘standard’ 3x that so many people quote?

Here are four key areas that you’d need to focus on (although there are many more).

1) Business Size

In very simple terms, the bigger your business it is often the case that you’ll get higher multiples. As a general rule of thumb, once you get over the £10m turnover mark, that’s where bigger multiples happen.

2) Profit Yes, I know that sounds obvious but the more profit that you make the higher multiple buyers will pay. And it’s not only the actual profit figure in pounds, shillings and pence, it’s the margin (higher the better) and length of time that you’ve been making that profit (years not months) that will push your multiple up. 3) Management Team

Step one of making any business sellable is the ability for it to run without you, the founder/ owner. To do this you need a (good) management team. And you need to prove to the buyer, that without any doubt, that management team has the ability to run your business perfectly. The better the management team, the safer the bet, thus higher multiples.

4) Professional Advisers

Getting the best advice, from experienced M&A lawyers, accountants and tax advisers is a must. Spend as much as can on these. Not only can they help you increase your multiples, but they could save you thousands, if not millions, of pounds.

There are other factors, but those four are the key aspects that will move you towards selling your business for more than the “standard 3 times”.