Most owners start thinking about selling about a year before they want the money. That is too late to change the price. The buyers’ advisers will look at three things in the first week of diligence, and all three take two to three years to fix. If you are an owner thinking about a sale, this is what I would start on now.
The board
A buyer wants to see that the business is run by a board, not by you. That means a proper board meeting every month, a pack that goes out beforehand, minutes that record decisions, and at least one independent voice in the room. It also means the big decisions of the last two years are written down somewhere other than your head. If none of this exists, the buyer prices in the risk that the business stops working when you leave. Start the board first. It is the cheapest fix and it makes the other two possible.
The numbers
Owner-managed businesses report what the owner likes to look at. Buyers want margin by product and by customer, a twelve month order book, cash by month, and the three or four operational measures that explain why a month was good or bad. They also want three years of it. If your management accounts cannot answer “which of your products actually makes money”, the buyer will assume the answer is unflattering. Getting the finance function to produce this takes a year, and the second and third years are what make it credible.
The team
The question every buyer asks is: what happens when the owner goes? If the answer is that sales, purchasing and the two biggest customer relationships all sit with you, the buyer either walks or holds back a large part of the price until you have handed over. Building a management team that can run the business without you is the slowest of the three, and the most valuable. It usually means promoting one or two people before you think they are ready, and bringing in one from outside.
What this is worth
I have seen the same business valued at two very different multiples depending on whether these three things were in place. The difference is not the trading. It is how much of the risk the buyer thinks they are taking on. I spent 12 years as the owner of WILA, a UK and German lighting manufacturer, before selling it to private equity in 2016, and I had to do all three myself.
Where to start
If you are two to three years out, a short piece of work to look at the board, the numbers and the team, and to say plainly which of the three is furthest behind, is the right first step. From there it is usually a board role for the run up to the sale. If you are twelve months out, the honest answer is that there is less I can do, but it is still worth a conversation.