How does a strong sales operation boost the Exit value of your business?
How does a strong sales operation boost the Exit value of your business?
You might think the answer to this question is a simple one: get more sales!
Yet potential buyers are investing in consistency. If there’s a sudden spike in sales revenue they’ll be cautiously looking at the reasons why, and asking if they are sustainable.
If there’s any suspicion that recent sales growth is a result of heavy discounts or clearance of stock then it might not do anything to Exit value at all.
Why is Exit value important?
There’s an underlying question here too: Does Exit value matter?
The reality is that every business is sold or closed at some point. Too often we see weary business owners trying to squeeze every last penny out of valuation when the reality is that the way they run the business has long been the obstacle.
If the fundamentals of a business are sound then when this moment comes you’re prepared. You don’t need to make stressed changes to the culture and the systems in order to boost valuation. You can focus on presenting your story to interested parties.
Of course, a sound business isn’t just about Exit. If you ever look for funding then the management approach that maximises value on company sale will stand you in good stead when speaking with lenders. A well-run business is attractive in all circumstances.
How does a strong sales operation impact this? Let’s break it into three clusters:
How does sales strategy impact Exit value?
One of the key questions an acquiring organisation will ask is: what happens to this business if we take out the owner?
Most selling owners have good reasons for leaving. However attractive the earnout deal, the reality is they want to move onto other things.
If the owner is the company’s best sales person then how does that impact future sales?
Who’s responsible for senior relationships with major customers? If this too is the job of the owner then they become even harder to replace. Often these relationships trace back to when both supplier and client were small. Those relationships have built over time, through good times and bad. They’re really hard for an acquiring business to replicate.
The other side of this is that smaller companies often rely heavily on a couple of great commercial clients. When you’re buying the business this increases commercial risk…which decreases the price you’ll pay.
Another factor impacting Exit valuation is growth potential. Can you demonstrate a reliable source of new business? For example, if you can show that spending £100k on Google Ads or £500k on a radio advertising campaign both boost sales then that shows growth potential.
With existing customers how effectively are you cross-selling to them? How long are you keeping clients and what’s their repeat rate? Predictability wins. If you have retained clients and high repeat rates then you’re probably not running as fast as a similar company with lots of ad hoc projects. Your valuation will be higher.
How does my sales team impact Exit value?
It might not be obvious how your sales team affects company value. After all, their job is to hit their sales target isn’t it?
Going back to the section above, the question is who exactly is bringing in the revenue. The worst case for an acquiring business is if it’s all a result of the owner’s personal relationships. It’s not much more attractive if it’s all down to the company’s star sales person.
If it is then they’ll be asking how they can be certain of keeping them. What employment contract is place, what’s the bonus system and when is it paid?
To some extent this is in the owner’s hands. Often this situation is a result of a stressed owner just relieved that sales are coming in. Today’s bills are paid.
Yet an acquiring business will take a longer-term view of this. They’ll likely value the business more if that star sales person has built sales processes that everyone can follow. Likewise, if they have trained newer members of the team so customer management is a shared responsibility. It’s all about minimising risk around the investment.
Taking this a step further, how do you plan to manage your key customers? At a basic level an acquiring business is likely to look for some sort of sales plan for the biggest and best clients.
This will look more compelling if you’ve profiled the key decision-makers in each and you have account contact plans that set out the roles and responsibilities of your sales team. This all gives the acquiring business confidence that they are buying a repeatable system, not just a series of ad hoc activities that somehow continue to work.
How does my sales process impact Exit value?
A healthy sales pipeline is one of the biggest factors Sales can have on the Exit value of a business.
It’s not just the amount of revenue coming out of the pipeline. It’s the predictability of that revenue.
So many directors and owners complain about an unreliable sales forecast, and acquiring organisations are no different. If hitting budget each month is an uncomfortable scramble of calls and deals then your Exit value will be shaded downwards.
Behind that, an assessment of your sales pipeline is going to ask about the criteria you’re attaching to each gate stage. How reliable are these criteria? If your pipeline rates Prospects as a 33% likelihood of conversion then can you demonstrate you actually turn one in three into a customer?
It might sound like basic admin, but is your CRM routinely kept up to date? Are client details live, with opportunities flagged and acted on? Some of these tasks can be taken on by agentic sales tools now, making them even easier. However you carry them out, a buyer will see them as an indicator of the professionalism of your sales team. Confidence builds value.
Another business-critical sales process in most organisations is how pricing is set and discounts managed.
All too often this is something that’s evolved through the sales team. Somehow this team has decided how new products should be priced, and discounts are a result of what customer shouted the loudest.
It works, but it works because the sales team who invented it are there to maintain it. Take an outside view and what you see is a pricing structure that needs rebuilding, with all the internal time that will eat up, and all the customer friction that it creates. It’s another factor that will drag on company value.
Why do Sales and Finance so often fight each other?
You could spend a lot of time exploring this question! A short answer is to say that Finance is fundamentally about managing risk. Sales, on the other hand, is about taking risk in order to grow revenue.
Spirits drop in the sales team when they’re told to get approval from the FD for a new opportunity. But at the same time the finance team might be worried about the consistency of deals being done and discounts being given away.
Looking at this question from the perspective of Exit value shows the two teams actually have similar goals. Consistency and repeatable approaches drive up Exit value. Demonstrating to a potential buyer that you have both financial and commercial controls in place is likely to maximise the price that’s eventually paid.
Run your business like you intend selling it.
We’re working with a Finance partner to help businesses boost their Exit value through better Sales and Finance systems. If you’d like to know more then drop us a line to arrange a chat.