As you embark on the journey of selling your business, your goal is to get the most value for your company in order to position yourself for whatever path you decide to take post-sale. But the value of your business relies on several factors, some of which you simply can’t control (the economy comes to mind).
Rather than gripe about those factors, why not focus on the areas you can influence? Here’s how you can actively increase the value of your business leading up to your sale.
Make your financials speak to top-dollar bidders
It’s not uncommon to find financial statements that offer only high-level information. However, if you want to attract top-dollar bidders, you have to focus in a little closer on the numbers.
For example, your statements should do more than state the amount of money you made. While that number is significant, perhaps more valuable is how you made the money. By focusing on the how, you can show investors the factors that are driving profit.
You also should consider having an independent audit performed by a CPA. In fact, even if selling your business isn’t on your radar, you should have annual financial reviews performed to spot underlying issues before they become intrusive obstacles. As far as financial reviews are concerned, nothing is more respected as a third-party audit. Yes, these audits are expensive, but they’ll certainly make your company far more attractive to blue-chip bidders.
We also suggest you create non-GAAP reports that include inventory turns, days receivable and days payable. What these reports do is demonstrate to the buyer that you’re making a concerted effort to dissect the metrics that determine profitability (rather than just sustainability). In other words, your business will be more attractive to buyers if you make your business more turnkey before attempting to sell.
Address any existing customer concentration issues
Customer concentration is when your business earns more than 20% of its revenue from one customer. This does not bode well for future potential earnings, as the risk of losing this customer (and a significant part of the company’s revenue) is far too high.
Righting this ship can take years, which is why it’s absolutely important that you address these issues early on. If, however, you find you don’t have time to fix the issue (as you’re selling your business in the near future), have no fear. Buyers are willing to invest in companies with customer concentration issues. Just understand that this may lower your valuation.
Assemble a solid management team
This is particularly important if the owner is transitioning out of the business. The business should not be dependent on the owner’s personality or customer relationships. To avoid this, assemble a management team that will have the power to make decisions and systematize the day-to-day operations. That way there are fewer hiccups as the owner transitions out.
Consider your contracts and compliance practices
If your business has long-term contracts with customers or suppliers, make sure that these contracts can be reassigned to the purchaser of your company. Also, ensure that you’re adhering to all regulations (think HR and OSHA compliance). Keep in mind that all buyers will require at least a clean Phase 1 Environmental Study by a third party.
Create a strategic plan for growth
Any buyer wants to know that their investment is well positioned for future growth. A strategic plan for growth can reduce the buyer’s risk, which, as a result, can increase your company’s value.
Get an outside view of the steps you need to take
One of the most difficult parts of selling your business is taking a step back to determine what steps are needed to increase your company’s value. Developing an unbiased view can be a real challenge for an owner who’s been associated with his or her business for a significant period of time. That’s where an investment banker comes into play. Investment bankers can offer you a different look into how best to position your business for sale.