Mail Manager recently spoke to John Farrugia, CEO of FinnCap Cavendish, leaders in the M&A advisory space. The firm specialises in dealing with entrepreneurs who have grown their business and are now looking to exit as well as firms looking to acquire new companies. Seeing things from both sides lets John understand what is important to ensure a positive outcome for a sale. Here, he gives his top tips for those looking to make their business an attractive opportunity for potential investors.
1. Investors look for top-line growth
FinnCap Cavendish only works with businesses with a very high chance of a completion rate. One of the traits for success here is looking for businesses that demonstrate their ability to grow consistently. Businesses instantly eliminated are the stagnant companies that initially appear to have growth which John refers to as Dross. These companies have inflated valuations and hockey stick profit and loss accounts. Usually, they show around £2m growth in Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA), but there isn't growth.
Pay attention to your EBITDA margin and ensure you set and maintain strong KPIs. Understand where you are trying to get to and keep checking yourself against that plan. Go to companies house and compare yourself to your competitors.
2. Key things a business needs to consider a year before
Make sure you are preemptively planning – someone will be coming in to analyse every single aspect of your business, so ensure that you have all the right KPIs in place and are operating efficiently. This will be essential for your advisor to analyse how the company works and see what you have to sell. This stage may involve some changes being made. In John's experience, many businesses are poorly run in the finance department, and quite often, the CFO can be changed to help improve a business's prospects.
3. Typical mistakes that cause deals to go wrong
Your advisor needs to know about all the skeletons in the closet so that they can best prepare your business and show it in the best light possible. Buyers will be going through your business with a fine tooth comb, so it's imperative to have a process and ensure that you have done your due diligence and have all your legal documents in place.
4. How to choose a great advisor
You do not want just a good advisor, you want a great advisor, and John has some tips on what traits that person should possess and where is the best place to source them. You will need someone commercial, well balanced who will push themselves to the edge and negotiate the best package possible for you. But don’t overlook soft skills; your advisor must be dynamic and comfortable to battle it out on your behalf.
Don’t make the mistake of judging based on a firm's brand name, as it is the individual who will be working for you. The best way to find great advisors is through recommendations; good lawyers and accountants often have good connections.
5. Don't be attached to an idea of whom you think you will sell to
Entrepreneurs often envision the type of buyers they will sell to, and in reality, it's usually quite different, so it’s best to let go of preconceived notions about this. Your advisor will often come in with four or five new suggestions, and it’s all about the story that is crafted around this. Trust that they know the business and what works.
SME business leaders can often juggle multiple roles whilst preparing for investment; for top tips on making the most of your business, why not download our free guide, 'The small business owner's guide to streamlining processes and increasing productivity'.
