Maximizing Business Value Before You Sell
“My business could be a gold mine, for a new owner,” the seller says. Or their statement goes something like this: “With a little more sales and better marketing, a new owner could make a fortune with my business.”
If you are considering the sale of your business, no one wants to pay you for potential. A prospective buyer will typically justify what they can pay for your business based upon the most recent historical financial performance. A buyer wants to step into a business that is stable, profitable and proven. If they are going to invest in buying your business, they want to make that investment back as soon as possible.
So what should you do if your business is struggling but you want to sell? Take the time to maximize your business value before you put it on the market. How do you do that?
Get Up to Date
New innovations in technology, business processes and digital marketing are affecting nearly every business. If your technology is aging, your processes have not been updated or you don’t have an online presence and a solid marketing plan, your business isn’t worth as much as it could be.
This also includes things like equipment, computers, and more. If you have a fleet of trucks, are they aging and nearing retirement? Are your computers less than three years old? What about simple things like your office furniture, chairs, and other items? These are part of the first impression a buyer will have when they tour your business. You want to wow them, and in a good way.
There’s another side to this too. It takes time to sell a business; therefore, you should operate your business in the best possible ways so that it achieves the greatest profit possible before it goes to market, as well as during the selling period and up to completing the business sale transaction with a buyer. This includes reviewing the prices you charge for the products or services you offer. This is an area that doesn’t always get the attention it should. Better to monitor your costs ongoing and make small adjustments periodically to selling prices rather than allow an extended amount of time to pass and find a large price increase is needed. long and find a price increase long overdue.
Marketing and Growth
As a business owner, you know that if you don’t market your product or service, your business suffers. If sales are not growing, you’re actually going backwards. A buyer wants to see that you are still enthusiastic for your business and that your employees and customers share that enthusiasm.
When a buyer is engaged in reviewing your business for a possible purchase you want them to see and understand how great your business is now and how it has performed in the past. Taking the position of stating to a buyer how the business might perform in the future by changing this, or adding that is a sure way to discourage a prospective buyer from acquiring your business. You wouldn’t sell someone a new product that “with some work could be pretty cool.” You can’t sell a business that way either, at least not if you expect to get the highest possible purchase price for it.
While it may sound counter-intuitive, when you’re ready to sell your business it should be at its healthiest, and more than ever, you should be focused on marketing, growth and operational efficiencies.
Clean Up the Books
When you’re ready to sell, your financial statements must be up to date and in order. That makes sense, because when a buyer performs due diligence it is one of the first things they will review. Clean and clear financials will lead to improved buyer confidence and that they are considering a great business with an owner that pays attention to all the details.
Resisting the temptation to expense personal items through the business or having the business purchase assets that are not used in the operations of the business will result in showing the the real profitability and potential of your business. Yes, with higher profits you may pay more in taxes; however, for every additional dollar of profit shown, the additional value of the business, depending upon the size of your business, can be between 2 to 4 times this much.
Take Action
Selling a business is a challenging task, and it takes time. You and your business need to be prepared before you go to market. Whether you are planning to sell as soon as possible, or you are developing an exit plan for some time in the future, I would love to start a conversation about selling your business, and what you need to do to get ready.
Contact me today, or whenever you’re ready.