What do you need to do to maximise the profitability of your business and get it ready for sale? We report
The market is slowing. The figures make that clear. According to figures from Business Pilot sales in June 2022 compared to figures for June 2021 were down by 30%. Leads fell by 29% over the same period.
“A lot of people were considering selling-up pre-Covid but rode things out” says Elton Boocock, Managing Director, Business Pilot. He continues: “Inflation and pressure on household incomes are definitely making things tougher.
“If you’re a ‘certain age’ that could make it a good time to cash out but if everything is in your head, if you are the business, that’s going to make it very difficult to realise the full value of your business.
“That’s where business management software comes in. It allows you to download what’s ‘upstairs’, establish and automate processes, evidence profitability and financials and help you maximise the return on the sale of your business, whether that’s today, tomorrow or a couple of years down the line.”
Valuing your installation business – the price to earnings ratio
Elton argues that there aren’t any fixed rules about valuing your business but there are a couple of ‘common-sense things’ to keep in mind. “A buyer will be prepared to pay more for a business which is well structured and where processes are visible”, he says.
“They will also not only want to see your financial performance but also that you understand it. That it’s built on evidence.”
The price to earnings ratio or profit multiplier method, is one valuation approach. At its simplest it’s a projection of annual profits, which allow buyers to forecast how long it is going to take them to earn back their investment.
“There are a lot of variables to consider, repayments on any loans or capital investments” Elton continues, “employee overheads and other liabilities. Prospective buyers will want to do their due diligence and understand how your business runs in detail.”
How Business Pilot helps you to prepare your business for sale
Launched in 2017 and designed by installers for installers, Business Pilot connects the dots between sales, operations and financial reporting, from the moment a lead is registered through to completion and even aftercare. You can access information on any job any time, or group that information together to see and analyse trends across your business.
Project information to financial reporting is there any time, on any device anywhere installers need it and brought to their fingertips in real-time in an easy-to-understand management dashboard.
“It’s the understanding that you get of the profitability of your business. If you follow the steps in Business Pilot, you create a more robust business. You understand your cashflow, where your leads are coming from, is there money in the bank? You also understand where you’re making or losing it”, says Elton.
“Your buyer is going to pore over your accounts. That’s a given, but they’ll also going to want to see evidence that you’re maximising your profitability and understand costs.”
Management information at your (or your buyer’s) fingertips
In linking and connecting every element of your business, Business Pilot allows you to pull off real time data on your financial position, including projections and forecasts.
This includes the value of leads in the pipeline, the number of jobs that are currently quoted for, plus the value of quotes that are followed up or are waiting for a demo. That’s in addition to the value of jobs with completed surveys, ones that have been confirmed for installation but also those that have been put on hold or have been cancelled.
“We can also help you to understand precisely how much it has cost to obtain each lead, plus the cost efficiency of any marketing campaign at any given point”, adds Elton.
This information is pulled together in the Business Pilot Ops Dashboard, which draws in financial performance details such as the company balance sheet, outstanding orders, invoices fitted value, costs and gross profit. This is updated instantly, whenever a bill is paid, or sale is made.
Why you should push for a share sale
As a limited company there are two ways for you to sell your business either a Share Sale or an Asset Sale. As a seller, you’re going to want to push for a Share Sale, where the buyer purchases your business in its entirety, including assets but also obligations and liabilities. The buyer assumes responsibility for the entire sale.
In an Asset Sale, the buyer only acquires the ‘good stuff’, not your liabilities.
“Given the increased risk to the buyer, they’re going to want to commit to more due diligence. To make sure that your forecast profitability stacks up”, Elton continues. “You’re going to need to be able to evidence profitability against product type, the performance of fitting teams, the costs of call backs.
“Things that Business Pilot gives you – instantly.”
Start preparing your business for a sale now!
Elton argues that while the owners of many retail companies may want to cash-out now, sitting tight until they have their operational processes and financial reporting in hand, may help them get a greater return – while also maximising their profitability until they secure a sale.
“The point is your buyers know that the market has slowed, that your profitability this year is unlikely to match what you saw in 2020 and 2021 when the market was operating in a bubble”, he says.
“Given that it makes sense to get the right disciplines in place now, by getting your team to follow the right processes, automating as much of what you’re doing as you can, and maximise your profitability.
“You don’t want a distress sale. Get the disciplines in place now and sell at the right time and on your terms.”