Selling company due to poor ROI

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Published: 24 Nov 2015

Making an opportunity out of a problem

If I am approached by shareholders who wish to sell their company due to poor returns on the investment made, there are one or two strategies that could be adopted that may solve the problem.

A detailed review

A detailed examination of the direct and overhead costs for the current and previous year may reveal potential cost savings. There are consultant firms that specialise in this work and have their fees paid as a percentage of the cost savings identified.

A case study

For example, say the average cost savings identified from the current and previous year are £10,000 p.a. and the annual profit multiple used to value the company is between 3 and 5. This would increase the company sale price between £30,000 and £50,000. Even better, the valuation would not be reduced by the consultant’s fees, since those fees are a one off and would not affect future profits.

An alternative option

The buyer may wish to combine the business of the company for sale with that of his own company. The savings in overhead costs of the combined businesses can be significant and can increase the sale price substantially.

So it is up to the seller to identify the cost savings to be added to the bottom line to enable an increased sale price to be negotiated.

David Cane of Sundial Tax & Finance Ltd provides a share valuation service and, in conjunction with Pre-Exit Consulting, an exit strategy planning service.

David can be contacted on 0845 177 0036 or 07749 080 806 or email.