The years of hard work and dedication put into building a successful business demand that when you decide to sell, you should make every effort to maximize the selling price. Too often, business owners aren’t strategic in their approach, forgoing opportunities to increase their company’s value in the months and years before selling.
Here are just a few strategies that an experienced valuation analyst might implement to secure the best possible outcome for the seller.
Corporate housekeeping is a good place to start. There are many small steps you can take to get your business “house” in order before opening the door to potential buyers.
For example, buyers want to see clean financials. Work with your accounting team to tidy up the books. Make sure any personal expenses are separated from business expenses. Take any old, uncollectible receivables off the books, and remove obsolete inventory. Your company’s finances should reflect an efficient, organized operation.
The same goes for your contracts, leases, and other legal arrangements, including non-compete and buy-sell agreements. Get everything in order so that buyers can see that you’re thinking of the company’s future. If you have any pending disputes or lawsuits, try to get them settled as quickly as possible.
Invest in Management
While the owner may exit after a transaction, buyers might want to keep the existing management team, so your executive team and key employees must be impressive. If you aren’t confident that you have the right people in the right jobs, now’s the time to hire or promote the next generation of leaders. Present buyers with a finely tuned team that knows their jobs, has a track record of success with the company, works well together, and can move the business forward.
Training, mentoring, and professional development programs also show that you are committed to building a robust workforce. A succession plan—regardless if the new owners use it—shows that you are serious about the future.
Improve Cash Flow
It goes without saying but, above all else, buyers want positive and growing cash flow. Look at your company’s historical and projected sales, profit, and growth—these are strong selling points if they’re beating industry standards. Take steps to improve financial trends across the board, and ask your trusted financial advisors for their input and suggestions.
Is a disproportionate amount of revenue coming from just a few customers? A diverse customer base reduces risk for buyers.
Brainstorm with your sales team about what they need to attract new customers, whether it’s a different product, a wider footprint, or updated positioning. They will have ideas.
When you’re running a company day to day, it’s easy to lose sight of the bigger picture. Getting ready to sell means making tough decisions. Look at the company through the eyes of a potential buyer.
Are there family members or long-time employees who should move on? Is it time to close an underperforming location or phase out a marginal line of business? Is there a sales or marketing opportunity you’re missing or haven’t staffed for? Put resources in place to show that you’re taking appropriate steps to grow the business and help it thrive.
Maximizing the value of your business prior to a sale requires time, foresight, and diligence. It’s not uncommon for owners to take up to five years to prepare their business for sale if they’re committed to securing the best possible offer.
If you’re considering selling your business in the next few years, consulting with Dembo Jones’ team of Certified Valuation Analysts now can set you on the path to a successful, profitable transaction. Contact us today.