Trio Business Intermediaries Blog

Confidentiality is a critical issue that influences everything we do in business sales and valuations. 

It’s plays out in a number of ways:

• Ensuring staff aren’t unsettled by tales of a pending sale or change of ownership

• Preventing competitors using news of a sale to undermine existing customer relationships

• Maintaining dealings with suppliers, sure of an ongoing stream of orders

• Customers may become unnerved by rumours of a change of ownership, concerned about continuity of supply

• Professional advisors, whilst likely party to the planned sale or valuation, may leak an anticipated sale to other parties in the hope of securing a buyer

Whilst keeping all of these balls in the air, there’s another side to this whole confidentiality issue that warrants some thought:

How can someone buy the business if they don’t know it’s for sale?

Where do you sit on this vexed question?

There’s no doubt that marketing and making sales is tough in any business.

If business buyers can see that there are great sales and marketing machines already in place and actively churning away then they will feel much more comfortable about the transition to them as the new owner.

So if you’re thinking of selling your business we’d recommend putting some effort into documenting your sales and marketing systems, collecting good examples and shining a light on your achievements with customers and prospects.

Some of these areas might include:

• Graphs and other visual aids showing sales / marketing / leads / customer service / online stats

• Key sales and marketing people (NOT the outgoing owner)

• Smarten up the website, including testimonials and recommendations

• Tidy up the customer list and enhance it with each customer’s tenure, avg sales per month, industry  etc

Well there’s no new news in this statement is there?

Cash has always been a critical element of any business.

What then are the business valuation and sales implications of the cash elements of the business?

Underfunded business are usually underperforming businesses

If cash is doing the triple bypass and going straight into the pocket then it is extremely hard to prove to a prospective purchaser / investor that it ever existed.  If it’s not in the books it never happened as far as the sceptical advisor and the potential financier are concerned.

Sure some industries are notorious for skimming cash off the top but you can’t have two bites of the cherry – if you take advantage of some ‘free’ cash, you can’t then assume that you can reap the benefits of that income when you are looking to sell or attract an investor.

Good cash flow = good relationship with the business’s financiers = better prospects of having the acquisition funded by that financier.

Cash is mostly tied up in Accounts Receivables (Debtors) and Inventory (Stock) – it’s a strain on the new owner / investor to have to fund stock that can’t be quickly turned into debtors and then into cash.  Work towards keeping both stock and debtors as low as is efficient.

The level of cash demand often equates to the life cycle of the business – early on there is huge cash demand to fund growth, later in its life the pressure is on the business to maintain assets and develop new offerings.