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A Seller's Guide: 7 Ways To Increase The Value Of Your Business

If you are an owner of a business and are thinking of selling, it goes without saying that you are going to want the best price you can get. By taking some simple steps in the time leading up to a potential sale it is possible to significantly increase the value of your business. Below is a summary outlining some of the actions needed to help drive that value.

1) KEEP GOOD BOOKS AND RECORDS


If there was only one item on this list, this would be it! The first thing any potential buyer is going to look at when comparing one business to another is its earnings, particularly in relation to the ratio to asking price. It is vital that the earnings stated are verifiable, and this comes down to keeping good books and records.


Even if your business has the best product, location, or staff, none of this matters without the ability to show that you are making the money you say you are.


2) SHOW THE POTENTIAL FOR GROWTH


Whilst a buyer will generally only pay for past performance as opposed to future potential it is still important to show that the company has opportunities to grow. Every buyer buys a business with the expectation they will improve it and so by highlighting areas into which the business can expand you are improving your chances of getting a deal done.


Buyers are looking for an upward trend line in the growth of the business and this is a great driver of value for a seller, not to mention being very useful when it comes to looking for lenders to finance a deal.


3) MAKE SURE YOU CAN PROVE YOUR INCOME


Many business owners manage their finances with a view to minimizing their tax obligations. This can include running personal items through the business and can prove problematic when trying to show the ‘true’ earnings come the time of sale.


You should be sure to keep clear records of any non-business related transactions, and if a sale is planned far enough in advance you should make every effort to keep these items off the P&L.


Most small businesses are sold for a multiple of earnings and so whilst paying more tax in the short term may not seem appealing, the increase in value you will see at closing makes it worthwhile.

4) HAVE GOOD STAFF IN PLACE


Not every buyer wants to work the 80 hours per week that a current owner may do and so you need to be sure to have good staff in place to assist the buyer with their transition in to the business.


You should make every effort to take yourself out of customer facing roles to avoid the question of whether customers buy from the business or from you, and should look to have a solution in place for any family members working within the business who will leave once the deal closes.


For smaller ‘mom and pop’ type businesses that do not have staff, sellers should be sure to document as many of the processes and procedures of the company as possible so you are able to hand over a training manual to the buyer at closing that will assist them in taking over the business and will be something they can refer back to once the training period is over.


5) REVIEW EXPENSES


Increasing revenue is one way to improve your bottom line, but keeping a tight control on expenses can also have a significant impact. You should conduct a regular review of the expenses of the business to be sure they are still required, that better deals cannot be negotiated or found elsewhere, and that unwanted subscriptions have not been left on an automatically renewing payment scheme.


As previously mentioned, small businesses will sell for a multiple of earnings so improving your bottom line by managing expenses can be a powerful way to increase that number.

6) APPEARANCE MATTERS


You should be sure to keep your business in a presentable condition at all times. This shows a potential buyer that you have pride in the business, and helps to attract more buyers.


All equipment should be kept in good repair as this will be checked prior to closing and any damaged or faulty items will lead to a renegotiation of the sale price at best, and at worst the deal falling apart completely.


Most buyers look at multiple businesses before deciding which to buy, and making a good impression when it comes to the appearance of the business can be extremely important.


7) KEEP GOOD BOOKS AND RECORDS


Yes, I know I have said this already but the importance of keeping good books and records cannot be said enough! Having solid books makes it easier for a buyer to get financing, thereby increasing the potential pool of buyers. The SBA is a valuable resource for buyers but the banks will want to see good financials, and are particularly stringent when it comes to the allowance of any personal expenses.


Having good books and records can mean you getting a better price for your business and having to carry less of a seller note so to anybody out there thinking of selling, be sure to get your books in order as soon as you can so that you reap the maximum benefits at the time of sale.


For more information about selling a business call me on 407-989-6893.


Simon Harrison

The Harrison Group at Rockrose Realty Inc. #Business #SmallBusiness #BusinessBrokerage #SellABusiness #Orlando #Florida

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