Buyers pay for earnings times a multiple. Most owners spend all their effort on the first term. The second is where the leverage sits, and it responds to changes you can make in twelve to twenty-four months.
Reduce owner dependence
Document how the business runs, promote or hire a second-in-charge, and move customer relationships onto the company. Then take four consecutive weeks off and see what breaks. Fixing what breaks is worth more than any marketing campaign.
Convert revenue into recurring revenue
Retainers, service plans, subscriptions and supply agreements are valued at a materially higher multiple than project work because they are predictable. Even converting a quarter of revenue changes the profile of the business.
Fix concentration
A customer above 20% of revenue is a discount. A customer above 40% can end a deal. Deliberately grow the tail, and where possible convert your largest accounts to contracts with notice periods.
Clean up the numbers
- Three years of accountant-prepared, reconciled financials
- Personal expenses removed rather than explained away
- Monthly management reporting that ties to the annual accounts
- A stocktake and a debtors clean-out before the process begins
Protect the margin
Buyers extrapolate trend. Two years of improving gross margin supports the top of the range; a declining margin invites a discount regardless of revenue growth. Reprice deliberately and drop unprofitable work before you go to market.
Secure what transfers
- Long lease with option periods, or a clean assignment clause
- Registered trade marks and domains held by the company
- Written employment agreements with key staff, and retention terms
- Licences, accreditations and supplier agreements that survive a change of control
Tidy the balance sheet
Remove non-operating assets, settle related-party loans, and normalise working capital. Deal-day disputes about working capital targets routinely cost more than the fees for the entire transaction.
One additional turn of multiple typically costs less to earn than the equivalent increase in profit.
Start early
Most of these changes need two to three reporting periods to show up in the accounts a buyer will examine. Value your business now, act on the weakest drivers, and re-value annually so you can see the multiple move.