Top dollar: What makes a business sell for big bucks

Not all family businesses successfully bridge the generation gap, so the goal becomes to achieve a high price when the business hits the market.

Building a business creates a legacy of a lifetime of hard work. Your business is invaluable to you, but what about the market? It has its own system for determining value. Do you want to sell? It doesn't matter. Everyone wants their assets to be valued highly. With that in mind, here are five ways your business could become a highly sought after performer.

Be ahead of the pack

Every month there are countless headlines lamenting the demise of bricks and mortars as online retail grow its market share. And there’s no chance of this changing any time soon: online retail is just getting started.

JPMorgan Asset Management certainly believes growth in online retail as a way to go yet, it snapped up a $19.2 million interest in Sydney online fashion retailer The Iconic back in 2012.

The Iconic has grown rapidly in recent years, increasing its staff from 10 to 300 since 2011. As a major shareholder, JPMorgan Asset Management is set to reap the rewards of the company’s growth.

Bevan Roberts, founder and chief executive of Dale and Wood Business Sale Consultancy, says buyers always operate on a return-on-investment basis, something business owners should keep in mind, especially if considering selling the business down the line.

“You're looking at total investment, time, equipment, goodwill and stock. Look at the return on that basis,” he says.

Be innovative

When Melbourne-based IT group Radiata was bought out by Californian internet giant Cisco for over $295m, it was for the brilliant intellectual property within its chipsets. For many buyers, innovation is a game changer.

Stephen Seear, executive director of corporate finance for BDO, says businesses should add value through innovation and technology to attract suitors.

“Many small and medium enterprises have been willing to take risks and have been good at getting it right where big businesses stumble,” he says.

“Private equity investors have recognised the value SMEs can offer through technology and innovation, with many investors actively looking for technology enabled businesses.

“It's not about being the biggest or the best, it's about finding companies that are good at what they do. It may be the products, platforms or research related.”

Stable earnings can still be attractive

In the early years, growing your business is hugely important. But for well-established operations, stability can be just as attractive for prospective suitors.

Carlton United Breweries is a beloved Australian brand that's been in operation since 1824. In 2011, despite increased competition and reduced volume, things looked as good as ever -- VB was Australia's highest selling beer. Carlton Draught had seen 10 years of consistent volume growth while Carlton Dry had seen three years of over 20 per cent growth. South African giant SAB Miller obviously liked what it saw, and brought out the wallet.

“A buyer will be attracted by consistent performance. If you have a graph that goes up and down on repeat, a buyer won't like that. The trend can easily become down, down.” says Roberts.

“Buyers want performance delivered consistently. Contracting businesses can get an upswing when multiple contracts are awarded concurrently.

“In a business that's a distributor or manufacturer, a consistent performance is very good. You can see the business has been truly well-managed,” he says.

Become the right fit

In early 2002, Nathan Tinkler agreed to a merger between Aston Resources and Whitehaven Coal, growing his wealth by $244m. Advisory accountants on the deal estimated that for Whitehaven, the net value of assimilating Aston was between $575m and $775m. Aston's mining assets and holdings easily slotted into Whitehaven's structure to cut costs, create greater production and multiply use of their existing infrastructure.

Stephen Seear says it’s all about getting into the mind of the potential buyer.

“For any company looking to sell their business, they need to consider what the requirements of the buyer might be. One aspect we look at is the corporate structure of the company -- an appropriate structure can help to avoid complex deal structures and result in better outcomes for both parties. You can make yourself more appealing to a range of buyers by dealing with these types of issues up front.”

You are not your business

Those on the hunt for an acquisition will have a keen interest in the role the founder of the business plays on a day-to-day basis. There is a risk that the business will suffer or come under pressure once the founder moves on, and buyers will be well aware of this. Just look at Steve Jobs, easily one of the most famous founding chief executives ever. When he died, Apple shares fell to $377 a share, almost 50 per cent below the company's five-year average, according to Thomson Reuters. For the purposes of company valuations, business owners mustn't become the business.

“I think it's one of the really big questions for ageing proprietors,” says Bevan Roberts.

“If someone is bowling along with loads of knowledge in their head in 2006 and 2007, the GFC hits and they neglect to plan to sell the business, the appetite to purchase business declines. They continue to age. They are now in a position where it's harder to pass on their knowledge.”

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