It’s a new year and you have definitely decided to sell your business. So how can you increase its value? The obvious answer is to increase your sales and profits, since that is usually the first thing prospective buyers want to see. But there are a number of other things you can address as well to improve your business’ value.
• More Cash Flow and Profits
Cash flow can be increased with higher sales, and/or reducing operating costs. High real estate costs, personnel costs and costs of goods should be the first areas to analyze.
The sooner these changes are implemented, the better. Many buyers buy a business and look at the last twelve months of cash flow, so for every month these new changes are made the better your business looks to a prospective buyer.
Many business owners tell me that they want the new buyer to make the personnel changes. This is understandable because many business owners are very close to their staff or are just reluctant to make the changes necessary. Many of these changes, if made in advance of the sale of their business, could yield good dividends to the seller. Additionally, I have never met a buyer who is willing to pay (or give credit to) the seller for changes the buyer is going to make.
• Management Team
Are you the key manager and employee? If so, one of the steps you can take is to build a management team that can run parts of your business on a day-to-day basis. For instance, it is helpful to have a solid Sales Manager, Operations Manager and a Controller or Chief Financial Officer on your team. Having a top-notch, trained staff already in place gives a new buyer more confidence that he is buying a successful business.
• Good Accounting Records
It continues to surprise me that even really large businesses can have their accounting systems, records and tax returns in poor shape. This clearly is a red flag to a new buyer. If the buyer does not feel that he can rely on the records, then most buyers will reduce the price of their offer. Buyers (and the banks that finance the buyers) want to know the true cash flow of the business so they can make sure the Buyer can earn a good living and pay back the debt to the bank. It is important to get your CPA or part-time Chief Financial Officer to help you get your records in order. This will help increase the value of your business and speed up the due diligence process from a buyer.
• Contracts
Many businesses sell for a higher price if they have annual contracts, or longer term contracts in place. Contracts that are longer term and non-cancellable are more valuable than short-term contracts that can be cancelled easily, or no contracts at all.
• Recurring Revenues
If a significant percentage of the revenues come from repeat customers there will definitely be higher value in your company. Even restaurants that have repeat customers are more valuable to a new buyer because the business has a loyal following.
• Customer Concentration
A real risk to any business owner is having too much of his sales and profits dependent upon a couple of large customers. The impact of losing one major customer can be devastating to a business.
Buyers and banks do not like to see this dependence; diversifying your customer base will reduce that risk.
