When you sell your business, you probably know that you need to get a certain price in order to realize your exit goals and finance future ones. But when the time comes to place the business on the market, many business owners discover that its value is less than they had hoped for. To avoid this type of disappointment, follow these five steps to increase the value of your business to today’s buyers before you list it.
- Increase profitability. Showing potential buyers that your company is profitable is a good first step, but if you can demonstrate that the profits are steadily increasing, it will drive up the sale price. Look for creative ways to cut costs or strengthen efficiencies that can give the business an added profit boost.
- Create recurring revenue agreements. Good sales are what make small businesses attractive to buyers. In the years leading up to your departure, implement ways to increase sales and revenue, with extra emphasis on recurring revenue sources. These, along with strong pending vendor or customer contracts, will reassure buyers that they will experience a consistent income flow while they get used to the new business.
- Create self-sustaining routines and procedures. As the seller, you need to convince buyers that they can carry on your business after you leave. The way to do that is to develop self-sufficient and airtight routines and procedures that allow the company to function without your direct involvement. Document these processes thoroughly to ensure that the new owner can keep running the business at the same level of success.
- Retain key employees. New owners appreciate that skilled employees keep a business stable and generate ongoing revenue for the company, so the last thing they want is turnover. You can increase the value of your business by cultivating a quality workforce and provide incentives for key employees to remain after the company sells, such as equity ownership or bonus schemes.
- Make your products or services stand out. In today’s marketplace, companies with differentiated products or services can command a higher value. Develop and promote intellectual property, patents, or other unique aspects of what you sell to give you an advantage over the competition. Buyers will quickly appreciate that the business is uniquely positioned to dominate a portion of the market.
If you’d like to discuss this process further, I’d love to assist. Give me a call today at (925) 399-1529!
Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.
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