How to Increase the Value of Your Business Before Selling It
Discover how to enhance key aspects of your business to increase its sale value and attract buyers. Prepare for a successful sale by addressing potential weaknesses and mitigating future due diligence challenges. Excerpted from BizBuySell's Guide to Selling Your Business.
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Identifying pre-sale improvements to attract buyers and build value. Two objectives guide pre-sale improvement plans. Enhance strengths that most contribute to the attractiveness and value of your business. Overcome weaknesses that most detract from the attractiveness and value of your business.
To develop sales and profits, assess how the sales and profits of your business have trended over the past 3 years using the sales and profit growth chart in the digital toolkit.
Analyze whether there are revenue sources that could be developed. Identify purchase patterns or successful marketing campaigns you may be able to build upon or replicate.
Determine if you can reduce cost of sales and therefore increase profit margin. Reassess pricing, increasing margins or rates on your high demand unique offerings and adjusting prices.
Look for areas in your business where you have capacity to grow. Identify which products or services deliver the lowest and highest profit margins. Develop streams of recurring revenue, automatically repeating sales or for service businesses, service contracts.
To strengthen the financial condition of your business, work with your management team and accountant to consider the following actions. Optimize accounts receivable by promptly following up with past due invoices. Negotiate terms for accounts payable. Reduce expenses by eliminating unnecessary purchases. Reassess inventory needs. Consider seeking a small business line of credit to preserve cash flow.
To present necessary financial statements for the past 3 years, work with your CPA to prepare the following. An income statement, also called a profit and loss statement. A balance sheet, which presents the financial condition of the business. A seller's discretionary earnings SDE statement, which recasts the income statement into a proforma estimate of how much money the business generates annually for the benefit of its owner.
To address unresolved issues that affect the legal condition of your business, seek legal advice as you examine and plan to address the following issues. Patents that will be part of the business sale must be current. The lease for the business location must be current, assignable and transferable.
The business must be clear of any zoning regulation violations. Any legal claims, incumbrances, or leans against the business should be cleared prior to the sale offering. Pending or unresolved lawsuits must be concluded before the sale or disclosed early in the selling process long before due diligence discovery.
If your business has faced or faces employee related issues, be prepared to disclose the problems and outline the steps taken to preclude similar issues in the future.
If your business has had regulation or law violations or environmental or safety compliance issues, the expenses will be yours to address. Be sure all licenses are up to date. Be sure any necessary third-party consents to your sale will be easily obtained.
Use the business sale documentation checklist in the digital toolkit along with advice from your attorney and broker if you are using one as you compile the necessary information.
To strengthen the marketing of the products and services of your business, consider the following actions. Be prepared to present how your products and services are decidedly better and preferred when compared to competing options.
Be prepared to present how your products and services are produced using a process that is difficult to copy but easy to adopt and follow. Review and improve product presentation and packaging to enhance visual appeal and to reduce cost, waste, and environmental impact.
Improve and document proprietary production processes. Study online reviews for your business and products.
To strengthen or overcome conditions that weaken your business location. consider the following actions. Consider product revisions to increase appeal. Also consider product and marketing adjustments that attract new customers from the local market from nearby markets and from markets that might be served remotely.
If your business relies on the local market for staffing and finds employee recruitment increasingly difficult, review the competitiveness of the salaries, benefits and conditions your business offers.
Consider how you can shift the emphasis of your business and its offerings away from high-risk aspects and toward undamaged niches of the industry. If your business has not adapted to recent industry changes, plan to make necessary adjustments to bring it into alignment with industry standards prior to a sale offering.
If your business location attracts foot traffic, review and update business signage, point of entry and interior, ensuring that it is clean and in condition to make a strong first impression.
To make improvements to the facilities and equipment of your business consider the following actions. See that all equipment is in good order and ready for presentation, not only through a facility tour but also in the form of an asset list that itemizes furnishings and equipment.
If equipment is owned rather than leased, confirm that it is owned by the business and not the owner and that titles are free of leans or incumbrances.
If equip is leased, review the stipulations length and transferability of contracts. See that all manuals, leases, service contracts, and other supporting documents are ready for presentation.
To strengthen the capabilities and processes of your business, consider the following actions.
Define the capabilities that most contribute to the success of your business. See that business processes are detailed in process manuals. Write or update your business plan and create a short form version. Write or update your marketing plan and create a short form version.
To strengthen the management and staffing of your business, consider the following actions.
Create and train a management team that is committed to the business backed by solid training and transferable employment contracts. Create employment policies that are outlined in an employee manual or handbook.
Create an organization chart or a description of your business organization and structure. Document your personal role and responsibilities in the business.
To strengthen the clientele, client relations, and client databases of your business, consider the following actions. Review the condition of your customer database or create one. If necessary, with your attorney, review current client contracts for accuracy and transferability
If necessary, reduce reliance on one or a few clients by developing a broader customer base. If necessary, reduce the reliance of key customers on your personal presence and interaction.
To strengthen the brand and reputation of your business, consider the following actions. See that your website is well-designed, well-optimized for search, quick to load, and owned not by you personally or by its designer, but by the business and therefore transferable as part of the sale.
If you have not done so already, secure your business name with your state's business filing agency and also secure it online as a domain name and across social media channels.
Unify your business identity across all signage displays, advertising, and sales materials. Review search results and create a plan for generating positive reviews and publicity, if needed.