Preparing for an exit: should you invest in business intelligence?

5th May 2023

At a glance

  • If you’re selling your business, buyers will want to see as much data as possible to support their offer.
  • As well as revenue and profit, they’ll look at detailed metrics such as working capital and cash-flow forecasts.
  • Business-intelligence tools can help you produce, review and present these figures to potential buyers in a user-friendly way, which could boost your chances of a sale.

As you approach a business sale, strong metrics are essential to prove the health and potential of your company to buyers. With a wealth of business-intelligence tools available, investing in such technology could help boost your sale value, catch the attention of buyers and speed your sale process. It could also help you and your team stay focused on the business by reducing the burden and distraction of data gathering and presenting.

What is the role of business intelligence in exit planning?

Potential buyers of a Small or Medium-Sized Enterprise (SME) always want to see as much data as possible to support their decision and potential offer. This starts with metrics such as regular growth in revenue and profit, to show your firm has a compelling and sustainable proposition. Some SME acquirers even refuse to look at firms that don’t meet certain eligibility criteria – such as £1 million revenue and 15% profit.

To make sense, the data must be benchmarked against firms of a similar size and sector. For example, some industries, such as grocery sales, might operate on very tight margins, while others, service as service-based businesses, might expect a higher margin. Good growth at a manufacturer might be 10% to 15% a year. But in a dynamic young tech company, it might be much more.

Once you’ve attracted a buyer’s attention, they’ll look at more detailed metrics, such as working capital and cash-flow forecasts. If you have recurring revenue, especially with customers on contracts, that helps make your firm attractive. For example, if you have monthly contracts that require notice to end, the acquirer can see that income is reliable.

Andrew Shepperd, co-founder of Entrepreneurs Hub, says: “Annual recurring revenue (ARR) is good, and monthly recurring revenue (MRR) is even better. It could be a subscription or rental business – anything from a managed phone service to insurance paid in monthly instalments.

“For example, with the launch of Microsoft 365, the company moved from large one-off sales to monthly subscriptions. With smaller monthly amounts, the user is less inclined to negotiate or turn it off. That provides the company with a smooth, reliable, sticky income. Lenders are another good example as they receive reliable interest payments, creating consistent cash flow.”

More metrics to help sell your business

Other important metrics include low customer and staff churn, which show you have happy customers and employees. If either of these churn rates are high, it suggests your products, services or employee proposition aren’t competitive.

But customer churn isn’t everything. Purchasers also need to look at retained profit as a percentage, year on year. For example, if you have 100 customers each paying £1,000 a year, but the next year you have 95 customers paying £1,250, that suggests your product has become more valuable. Losing a few customers isn’t necessarily a problem in that context – if your costs remain the same, your revenue and profits will still be higher.

Other information you could show potential acquirers includes a good record on Environmental, Social and Governance (ESG) factors; a good credit history; and low or no complaints, court judgements, tribunals or regulatory fines.

“The due diligence process will find these things out, but it pays to be transparent upfront,” says Andrew. “Otherwise, it will breed mistrust and make the buyer wonder what else you’re hiding.”

Investing in reporting technology ahead of an exit

Many types of reporting and analytical tools can help you produce, review and present these figures. As the business owner, you may have a good idea about what drives these beneficial metrics. But for someone who doesn’t know the business as well as you, technology can highlight the most important features and bring them to life.

Business-intelligence tools and other types of software can also often help automate and speed data retrieval and provide insightful analysis you may not be aware of. They can help arrange all this information in easy-to-use dashboards and attractive, digestible visual information that can catch the eye of potential acquirers. They can also help you produce regular figures, which is important because potential buyers will want monthly updated figures during negotiations.

“Before a sale, you’ll need some kind of system to help you gather and present all this information,” says Andrew. That could include accounting software; enterprise resource planning (ERP) and customer relationship management (CRM) systems; and other business systems such as inventory control and costing software.

Dedicated business-intelligence software can go a step further by ingesting business-critical data from other systems, then analysing and presenting it in a user-friendly way, which could make all the difference during a sale process.

Such analyses support decisions that will increase productivity, revenues and growth – so it could make sense to invest in this software as far ahead of the sale as possible.

Whether you need new software and how much to spend on it depends on your specific business needs. Factors in the decision include what you have already, how much time the new kit is likely to save and what other benefits it offers, such as presenting tools and an easy-to-use dashboard.

“If you’re an SME spending, say, £100,000 on a new ERP system and data warehousing, you’re unlikely to recover that in your sale price,” says Andrew. “Besides, the new buyer may want to replace it with their own system.

“But if the software costs £10,000 and it helps you uncover useful analysis – and helps your business to appear sharper and more professional – the return on investment could speak for itself. For an SME, a moderate spend on some analytical tools can be incredibly good value and transformational in understanding and presenting the business to others.”

Get in touch

If you’re planning a business exit, we can help. Contact us today and we’ll explore your options with you.

Exit Strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.

Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’sPlace.

SJP Approved 13/04/2023