Planning to Sell Your Business? - Know How to Increase the Value of Your Business
By viewing your business through the eyes of a buyer and understanding what factors buyers consider in determining a price they will pay, you can concentrate your efforts on improving those aspects of your business that will have the most immediate and visible impact on its value.
Increase Cash Flow
There is just no escaping the cliché - in selling a business, Cash is King. Buyers place the most weight on the amount of cash flow the business is currently generating; first and foremost because they are most interested in making money; and, secondly, most buyers will probably require some financing in order to purchase your business, so they will need assurances that the cash flow is more than adequate to cover the debt payments. There are several ways to increase cash flow over time, including:
- Hire a part-time CFO or CPA to review your books and operations for inefficiencies
- Work with your bank’s cash management department to automate your receivables and payables, which can increase your on-hand cash flow and keep more of your cash earning interest
- Consider outsourcing non-essential functions to reduce man hours
- Pay down debt faster
You may be thinking, “If increasing revenues is so easy, why have I waited until now to do it? No one said it is easy, but the fact is that buyers are willing to pay a higher price when revenues are growing; so it is worth any extra effort and resources to boost revenues. It may be time to increase incentives, update some sales campaigns, or take on a business development specialist. You need to ensure that your revenue increases are not concentrated among a few customers. In fact, if you can increase your revenue while increasing and diversifying your customer base you’ll add even more value.
Make Yourself Expendable
The best indication of how well-oiled your machine is is how expendable you are. A business in which the managers and employees don’t even know if the owner is around is much more valuable than one that requires the owner to be in on every decision.
Get Your House in Order
The devil is always in the details. In addition to ensuring that your books are in order, it's important to review all of your contractual arrangements - leases, employee contracts, and vendor contracts - to ensure they are not a hindrance to the sales process. Here are a few more of the details that many business owners miss:
- Update your financial reporting system if it's outdated.
- If you have been dealing with environmental or regulatory issues, make it a priority to put them to bed.
- If you have been considering relocating your business to a more prime location, or adding locations, do it sooner rather than later.
- If you haven’t already done so, file patents on products or processes.
- Consider adding suppliers to hedge supply line risks.