Introduction
In this case study, we delve into the journey of a lifestyle business at a crossroads. Looking to move on to the next stage of the personal vision, the business’s owners were determined to squeeze out the maximum return from their investment, even though the business held no significant balance sheet value and had only managed minimal profits. Struggling to find a clear path forward, the owners were in need of a solution that could breathe life into their exit strategy.
The Challenge
The business was characterised by its lifestyle orientation, a venture that had primarily served its owners’ personal interests. While there were no substantial financial assets or profits, an underlying potential for value emerged. The owners, however, lacked the knowledge of how to extract this value and convert it into a worthwhile return. The business’s future looked uncertain, and the owners were eager to find a way to maximise their gains before closing shop.
Solution
Recognising the underlying potential within the business, a strategic solution was proposed that involved several critical steps:
- Process Mapping for Value Identification: The first step was to map the existing income streams meticulously. This process revealed an unexpected jewel – an ongoing relationship with a high-value customer, built on inherent contracts that were hard to replicate. This discovery shifted the perspective, offering a unique way to extract value.
- Leveraging Inherent Contracts: These exceptional contracts held immense value. However, they were inherently tied to the business’s existing framework, making a simple transfer to a new owner difficult. This revelation paved the way for a strategic value-oriented sale.
- Employing the Power of Purchase: Recognising that transferring the contracts was improbable, the most effective way to retain their value was through the purchase of the business’s shares. This approach ensured that the vital contracts stayed with the business, safeguarding the value within as well as providing a more tax efficient exit from the entity.
- Quantifying Future Value: A discounted cash flow analysis was conducted to project the future Net Present Value (NPV) of the high-value contracts, calculated on a Gross Profit (GP) basis. This helped unveil the potential the contracts held, illuminating the business’s inherent worth.
- Identifying a Strategic Buyer: The next crucial step was to pinpoint the right buyer who could leverage the existing structure and contracts to their advantage. A potential buyer was identified, and discussions were initiated.
Value Impact
The implementation of this multifaceted solution brought about a transformation in the business’s trajectory:
- Strategic Offer and Purchase: The value proposition of the inherent contracts, supported by the rigorous analysis of their future potential, enabled the business owners to negotiate a significant offer for their company. This offer, exceeding £250,000, marked a remarkable turnaround.
- Optimised Exit Strategy: What initially seemed like an uncertain closing of doors transformed into an optimised exit strategy. The business owners were now poised to extract a substantial value they never thought possible.
Conclusion
This is a testament to the transformative power of innovative thinking and strategic acumen. The journey of this lifestyle business, from a position of uncertainty to a remarkable return, demonstrates the importance of exploring all avenues, even when the odds seem unfavourable. By delving into the intricacies of their business and leveraging hidden contracts, the owners managed to rewrite their exit strategy, turning their closing doors into a valuable opportunity.