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How To Add Value To Your Business
If the thought of selling your business is on your mind, start planning the sale today! Even though you may not be ready, by educating yourself on what today's buyers are looking for, you can better position your company for when you are ready to sell and ensure that you get a premium price for your hard work. The idea is to start working on these before ever listing your business for sale. Here are the top value drivers:
Profitability
Cash is king! Buyers are looking for enough cash flow to, 1. Service the debt; 2. Draw a decent salary; and 3. Have the business pay for itself in 3-7 years. Buyers will want to look at the last 3 years of financial performance. A history of stagnate of declining cash flow and sales can deter a premium offer.
Industry Is your industry growing or shrinking? In today's economic times, some industries are better off than others. This too, will determine the multiple (also known as Rules of Thumb) that your business will sell for. While there are many other attributes that go into pricing a business, industry is one area in which they look at.
Market Share Buyers will be looking at what the competitive advantages are, as well as, what they industry will look like ten years down the road. What is your business capable of that is superior to your competitors? Have you carved out a niche market, or are you trying to be everything to everyone? Customer Concentration Try to make sure that no one customer makes up more than 10% of your annual revenues. It is important to not have "all your eggs in one basket". This greatly reduces the risk of the business failing from losing one customer.
Reoccurring Revenues This is a very desirable business model. Buyers will look at how frequently your customers are purchasing from you and are willing to pay a premium; especially in the case where long-term contracts are in place.
Management & Employees Buyers are looking for a good team behind the business. Strong management and team leaders will ensure the buyers success once you are gone. If the business cannot operate without you there, gradually begin to pass you responsibilities on to employees or hire a general manager.
Financial Records Must be kept "clean". Make sure to drive all your profits to the bottom line. If you are taking cash and not reporting the sales, then you are hurting the value of your business. Additionally, any personal or discretionary expenses that you are running through the business needs to be minimized as much as possible in order to show the buyer your real cash flow.
Documents Having well kept records and documented policy and procedures can go a long way. Be sure to document things like job descriptions, operation procedures, office manuals, employee records and contracts, lease agreements, customer and vendor contracts, and any others that would be helpful in the running of the business.
Growth Potential How scalable is your business? This makes a significant impact on the overall offer that you will get. How quickly can it grow and is there a lot of capital investment involved in the growth strategy? Be prepared to explain growth potential to a buyer.
Customer Relations Are you the "face" of your business? It is important that the business does not rely on you. Cross-train the employees and delegate your responsibilities. You should be able to take off for two weeks and the business still function at full speed, with only minimal oversight from yourself. A self-functioning business model will bring a premium.
Clean Up Make any necessary improvements to the interior and exterior. Just as you would buy a house, a bad appearance to a buyer may cause them to question what other things are not being taken care of.
We would love to sit down with you and go over ways to add value to your business. Contact us today!
If the thought of selling your business is on your mind, start planning the sale today! Even though you may not be ready, by educating yourself on what today's buyers are looking for, you can better position your company for when you are ready to sell and ensure that you get a premium price for your hard work. The idea is to start working on these before ever listing your business for sale. Here are the top value drivers: