How to Increase the Value of Your Business Before Selling

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.


Carl Christensen
Carl Christensen is a Principal with Deal Capital Partners, LLC and InvestmentBank.com. Before joining InvestmentBank.com Carl served as CFO for a $50M consumer events company. He is a former employee of both Goldman Sachs and Deloitte. He brings both breadth and depth to the M&A advisory team here at InvestmentBank.com.
  • Alex Sierra
    Posted at 23:08h, 23 November Reply

    Part of the reason why the M&A process tends to be lengthy and complicated is because of the time it takes to build value for a company and prepare to take it to market. This is why it is so beneficial to start this process within a company as soon as possible, even when immediate sale is not on the agenda. If company owners wait until the M&A process to prepare their company for the market, they may end up having to make costly and time-consuming changes that slow down the process. Taking steps to build company value now can make things easier on company owners, easier on investment bankers, and easier on buyers.

  • John Hosmer
    Posted at 23:11h, 23 November Reply

    Interesting article and great read!

    I think a really important to note how crucial it can be for a business to develop and retain a capable management team that will effectively oversee the company’s operations throughout the post-sale transition from seller to acquirer. Of course, it may be rather difficult for an owner to imagine what a business will truly be like without its creator leading the charge, however, in order to secure a “healthy” future as well as receive the most from the acquisition whether it is an earn out or equity stake return, having a “healthy” (those that can adjust quickly to severe market flux in order to remain competitive) management team is critical.

    On another note, I think that owners can also increase value for their business by normalizing their EBITDA. In fact, addressing ‘recast adjustments’ or ‘add back expenses’ before acquisition can significantly improve a companies’ true value upon sale. Sadly, many small business owners fail to take advantage of certain adjustments and add backs because they simply do not know that small line items such as an owner’s personal expenses (for the company), company bonuses, repair and maintenance costs etc. can actually be added back to the business’s EBITDA. Ultimately, this will increase the overall enterprise value of the business and provide the owners/investors a greater return upon transaction.

    I should mention that these add backs and recast adjustments should not be see an easy out for owners trying to add ridiculous expenses back to inflate their company’s value. Understand that with all mergers and transactions, strict due diligence will be conducted by bankers, revealing any potential in-fiduciary activity. Owners should be aware that f any type of wrong doing is discovered, it will discredit you and may result in the termination of the deal. If by some chance the deal continues, expect a much lower valuation than what your financial statements indicate.

  • Dominic Niolu
    Posted at 23:11h, 23 November Reply

    It is definitely important for businesses to make sure they are doing everything they can to optimize the value of their company when they want to sell, before they even go to market looking for potential buyers. While not mentioned above, it would also be a good idea to use any insider knowledge one might have about a company’s industry to help time the economy appropriately to maximize value. Part of maximizing value is doing everything you can to ensure that you can sell your company in the optimal market environment.

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