Prepare Your Business Now to Get the Highest Price Later
Adding Value, Building Value, Exit Plan, Selling Business
Now is the best time to focus on increasing your business value. You have spent your hard-earned time and money creating and running your successful business. You anticipate that one day you will be able to sell your business for a pretty penny. The truth of the matter is that you may suddenly be shocked to find that your business may not be worth as much as you think it is. That is why it is so important to focus on increasing the value of your business NOW to entice buyers later and enable you to get the highest possible price when you are ready to sell.
You can easily do this by improving your business on an ongoing basis, starting now. Scott Cathcart, corporate finance lead for SunTrust says, “It’s like exercising – you can run a six-minute mile or a seven-minute mile. If you want to do better, you’ve got to tighten up, time yourself lap by lap, and introduce a measurable metric.” This same concept works for adding business value. Small measurable changes over time will help increase the value of your business down the road.
What can you start doing today? Start by taking a hard look at the following six major points – revenue, profit margins, the executive team and workforce, customer concentration, high-quality company data, and standing out by being unique.
Revenue.
Increase the value of your company by increasing profitability. Potential buyers are looking for businesses that have expanding revenues with a high level of future potential revenue. Recurring revenue is golden.
Profit Margins.
Take a hard look at your current revenues and expenses. Is there a large gap between total revenue and total expenses? Or are your expenses too high and reaching close to your revenues? Perform an internal audit to find ways to cut expenses. Look at everything including overhead, staff, and suppliers. Businesses with high-profit margins that are scalable are attractive to buyers. Focus on tracking and improving your profit margins year after year; this will make your business value higher and quickly catch the interest of a shopping buyer.
Executive Team and Workforce.
A strong executive team is attractive to potential buyers. A business opportunity looks more appealing with highly qualified staff in place. Managers or employees with industry licenses or certifications are a real “plus.” Long-term employees indicate a stable work environment. Your employees are your most important assets make sure you take time to build your relationships with them to create a positive work environment.
Customer Concentration.
Having a diversified customer base is extremely important to buyers. It is best to develop long-term customers with fewer large customers. If more than 10% of your revenue is from one customer or your top five customers make up close to 25% this can create a large amount of risk for a potential buyer. In the event are near the percentages above, it is best to address it now rather than waiting until you are ready to sell. Attempt to grow your client base with marketing, or utilizing your referral network, or try adding new items to appeal to another target market.
High-Quality Company Data.
Maintain well-documented processes along with up-to-date contracts and agreements with employees, vendors, and customers. Keep your business financial records accurate and in order. Financials that have been audited by a CPA carry more weight with buyers by reassuring them that your business is following good business practices. Being able to show buyers a strong history of profitable financials is vital to getting the highest market value for your business. You only get one chance to catch a buyer’s eye with your financials. If they lack integrity a buyer will not give them a second glance. Clean, consistent financial records are crucial.
Be Unique.
Aim to surpass your competitors in products and services and have reasonable prices. Provide high-quality services that promote glowing customer ratings and five-star reviews. Your online reputation does matter to a potential buyer so keep it positive. Be sure your products and services stand out as being one of the best in your market.
Make sure you are competitively priced but not too high or too low. Prices should never be set-it and forget-it year after year. Do regular increases or offer tiered pricing if you are afraid an increase will cause you to lose clients. If your prices are too low, you are squeezing your profit margins down. Prices that are too high will likely cause sales to decline. Do your research and make sure you are competitively priced and earning the profits you deserve for your hard work.
Take a close look at your business today. You can make small changes now that will build value in your company for years. You have put your heart and soul into your business; it’s just time for a little tune-up to make sure you can get the highest value for your life’s work when it is time to exit.
At Capstone Business Brokers, we recognize the importance of developing close relationships with our clients long before their businesses are ready to go to market. Feel free to reach out confidentially for questions, advice, or if you would like a great recommendation for a CPA? We are here for you and look forward to speaking with you.
