ADVERTORIAL: Business owner? Maximise value today for the right exit price tomorrow

SMEs are the bedrock of the Scottish economy, and those at the smaller end of the scale are amongst the most successful of all.

Many owner-managed businesses have world-class skills and technology, strong customer relationships, and generate such impressive profits that founders can earn more than directors of bigger counterparts.

In smaller businesses, owners’ wealth is usually tied up in the business. It’s only when they come to retire that the true value must be realised.

But no matter how successful or profitable they might be, firms of this size find it hard to attract interest from large trade buyers with the deepest pockets. Owners may well find a buyer, but the lack of wider competition makes it difficult to achieve the best price.

With so many businesses in Scotland being owner-managed, undervaluation is a big concern.

So how can founders overcome this hurdle, and maximise their businesses’ price?

Create value

Attracting buyers is much easier if the company is above a certain size.

If you can increase your annual earnings to, say, £4m or £5m, it opens up a whole new range of options.

The quickest way to do this is through mergers and acquisitions (M&A).

That might mean:

  • joining forces with a similar business whose owner is also planning to exit
  • expanding geographically by buying similar companies in other parts of the UK or overseas
  • acquiring a complementary business to broaden your client base or diversify into new areas, such as renewables.

To succeed through this strategy you’ll need to start at least a couple of years in advance of your planned sale – and it will require some investment.

Many prudent owners avoid taking on funding and retain large amounts of cash in the business. But they would often be better off creating value in the company by investing in acquisitions instead.

There is now a whole range of providers offering growth funding, including banks and alternative lenders and private equity firms investing in smaller businesses.

One strategy to consider is a two-stage exit – where you sell a stake in the company to a private equity firm in advance of a full exit.

This allows you to ‘de-risk’ by releasing some of the capital tied up in the business, while retaining a shareholding and securing funds for expansion.

You can sell the remaining stake at a later date, by which time the business should have grown and increased in value.

Exit options

If there is a clear successor in place, a management buy-out is an obvious solution.

An alternative is a management buy-in, where a manager from outside takes a stake in the business – typically someone who has had a senior role in a big company and wants to run a business of their own.

The business will also be more attractive to trade buyers, and a wider range of private equity firms.

No matter what form your eventual exit might take, increasing the size of business will expand the pool of potential purchasers and ultimately allow you to engage in a competitive sale process that will drive up the price.

By building now, you will achieve a far better outcome in the long run.

Dow Schofield Watts is an award-winning independent financial firm advising on areas including corporate finance, due diligence, tax, and business recovery. Find out more at


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