by Andrew Heslop - Friday, 7th December 2007 -

Think you know the answer? Don’t be so sure. Putting a price on your business involves more than just the “multiples” approach.

Be investment-ready

Being investment-ready involves planning, discipline and clear thinking. Your business will be attractive to others if answers to the following questions are both credible and demonstrable without a great deal of analysis or number crunching:

1. How does the business generate profits?
2. Why will it continue to do so?
3. How can profits be increased?

Answers to these questions will be found in the operating model of your business, but for many companies the model in unclear. You might think that talk of "operating models" is the language of consultants and other nefarious characters, but thinking in these terms will help you create a compelling investment story for prospective buyers.

Create a great investment story

Many owner/managers fail to create a compelling investment story when selling their business – perhaps relying on their chartered accountant to crunch a few numbers and help draft a modest prospectus.

Doing more than this can make a real cash difference to the sale value. Ensure your investment story is convincing, very easy to understand and calls prospective buyers into action. It must demonstrate investment readiness.

Valuing a business means understanding the drivers that underpin an external assessment of a companies worth. Relying on overly simplistic multiples may not be enough.

At the very least, you need to uncover and analyse the factors that drive multiples upwards; why be a six when an eight or twelve would be much more rewarding?

See also: What's your business worth? – part 1.

Andrew Heslop is the author of How to Value and Sell your Business, published by Kogan Page and recommended by the Institute of Directors. www.kogan-page.co.uk

andrew.heslop@virgin.net