We are entering a more optimistic era for business owners. Despite the last few years of challenges and continuous change, one constant has remained: the fighting spirit of entrepreneurs, who have adapted their businesses to survive and even thrive amid uncertainty.
Now, with a more stable market, business owners are feeling hopeful. In fact, 72% of European SME owners expect the value of their business to increase in the coming year, as reported by leading M&A advisory firm Marktlink’s research, making it the perfect time to take action and start planning for the future.
Given the last few years of unpredictability, executives may not have previously prioritised valuation. “Business owners tend to hear and see the headlines, which are driven by negative sentiments,” says Parkinson, managing partner of Marktlink North West. This may have convinced them that now isn’t a good time to sell. “Actually, the opposite is true,” he explains.
Brexit means the UK is, in some ways, harder to access, but because pan-European businesses still want to serve the UK market, they’re compelled to acquire targets to give them access behind the Brexit wall. Buying a business allows for expanding market share in a country that is harder to grow organically due to Brexit, actually opening up opportunities for entrepreneurs on both sides.
Entrepreneurs must see their business as an asset. How can it provide value later in life?
“For European buyers, the UK is still a hugely attractive market,” says Parkinson. “That’s driving a lot of interest and M&A activity from mainland Europe.” Now that election results are known, the UK is seen as a stable market and there is renewed confidence in the economy.
“With the second half of 2024 expected to bring a much brighter outlook for M&A activity, SME leaders need to be aware of their business value to be able to take advantage of an increase in opportunities,” Parkinson says.
Of course, the obligations of business life mean entrepreneurs often don’t feel they have time to consider how much their business is actually worth. But there is one card business owners should always have in their hand: an exit strategy.
The value of valuation
According to Marktlink’s research, around 40% of European SME owners remain unaware of the true value of their business. Without that critical knowledge, it can be more complex to plan for the future or capitalise on growth opportunities through mergers, acquisitions or other strategic moves.
Although a large majority of European SME entrepreneurs now expect the value of their business to increase, most of them haven’t taken any tangible steps towards a valuation. First, entrepreneurs must see their business as an asset. Taking a long-term perspective allows owners to look beyond the current profitability of the business. How can a business give you value later in life?
“Knowing what your business is worth - and what you want your business to be worth - is crucial to guiding your overarching strategy,” says Joe Moran, managing partner of Marktlink Midlands. You need to know what the value of your business is to know what steps you need to take to get your company in a position where it’s worth the value you’re aiming towards.
Being prepared should be standard practice for any business owner, especially in times when unforeseen opportunities may arise. “If activity increases throughout the remainder of 2024 as expected, then it becomes increasingly likely that owners may receive uninitiated approaches and will require prior knowledge of their business value to benchmark against,” Parkinson states.
While some entrepreneurs may imagine the valuation process to be a long-winded endeavour, this doesn’t have to be the case. The Marktlink Multiple, the firm’s intelligent, automated evaluation tool, enables entrepreneurs to receive an indication of value in just a matter of moments. With no obligation to act on the findings, it provides them with greater clarity on the current positioning of their business.
The first steps
So, when is the ideal time to start considering an exit strategy? According to Parkinson, day one.
Business leaders ought to adopt an exit mindset from the day their company opens its doors – even if they have no intention of selling up. “We wish we could get business owners to begin with the end in mind,” he says. “If you don’t know what the variety of exit options are, how do you know when the right opportunity presents itself?”
“Even if a sale isn’t a consideration for the next five years or more, working with an adviser to establish a current valuation and a plan to reach a desired valuation will help to close the expectation gap and allow shareholders to maximise value if and when they decide to exit,” adds Moran.
Starting that process involves engaging an experienced M&A advisor, such as those at Marktlink, to accurately assess your company’s value based on metrics like normalised EBITDA multiples for your industry, growth trajectory, and competitive advantages, to name a few. Fresh eyes can pick up variations like customer concentration, contract structures, the strength of the management team, margins versus competitors and then help to improve them.
Once a company’s valuation ranges have been established, the next step for Marktlink advisors is defining the personal goals of the owner. Beyond getting a business to a desired value, there are many ways for owners to step away from a company, each with its own personal benefits. Among these avenues are selling options such as partial sales or management buyouts.
Business owners should be thinking about how they want to be leaving their business, not just how much they want to be leaving for. A clear-cut exit isn’t the only option, with some exit strategies coming into completion over several years or partial ownership allowing owners to retain a certain level of involvement.
Aiming high is important and involving personal wealth advisors can help business owners achieve their goals. Personal wealth and capital is often tied up in the business, adding further considerations to the mix. When business owners consider selling, it can be tempting to mentally step away from day-to-day operations. In fact, this is the best time to ramp up involvement - and investment - in the company. Each choice impacts future sale opportunities and carves out a clear ROI for the business.
Whatever the path chosen, the earlier you start getting exit-ready, the more time you have to influence your options. The key is being well-prepared and able to pivot when faced with intriguing offers – or when major events necessitate an urgent exit. “What if someone comes knocking and offers you a premium valuation? Are you personally and operationally ready to sell? Or what if you or a partner fall ill and need to exit quickly? We take as much of the stress away as possible,” says Moran. With preparations in place, business owners can be empowered to make smart decisions when opportunities arise, without sacrificing growth.
Are you exit-ready?
If you’re among the 40% of business owners who don’t know your company’s value, then it may be time to revisit your business strategy and get exit-ready. Considering your current role in the business, the extent of your management team’s involvement and what you would be looking to get out of a possible sale are strong starting points.
Trusted M&A advisor Marktlink can help you understand your valuation ranges and define what you want to achieve personally - and financially - from a future exit.
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Since its inception in 1996, Marktlink has grown to become the largest independent M&A house in the high-end SME segment for Northwest Europe. The international team consists of 300 M&A specialists who support companies in transactions between 5 and 100 million euros. Marktlink brings together buyers, sellers, and investors worldwide with success - as the 130 successful transactions last year prove.
To find out more please visit www.marktlink.com
