Updated: Feb 27
When it comes time to sell a business, most owners know they must receive a certain price to achieve their exit goals and fund the next stage of their life or career. But when it's time to finally list their business, many owners often discover that their businesses are worth less than they had hoped. If you're like most business owners, you need to work on increasing the value of your business before you decide to list your business.
How to Improve Business Value and Sale Price
Scott’s rule of thumb is that the more you are prepared, the more control you have over the value and appeal of your company. Here’s how…
Increase profitability. The first step to take, so potential investors will understand the value of your business, is to get proof of continued increasing profits. If you can show them your profits will continue to trend upward, you can fetch a higher price. Finding opportunities to increase sales, reduce costs, and create efficiencies leading up to a sale will demonstrate an extra profit boost and impress buyers.
Establish recurring revenue agreements. Sales are the engine that drives successful small businesses. In the years leading up to your exit or merger, consider ways to consistently increase sales and revenue, with attention on recurring revenue that generate gross income for a new owner. Creating recurring revenue streams and securing any pending customer or vendor agreements will give potential buyers reassurance that they will have a consistent revenue flow while they get accustomed to the new business.
Differentiate your product or services. Differentiation is an important priority for any business. In the business-for-sale marketplace, companies with differentiated products or services can command a premium, if demonstrated your business is uniquely positioned to dominate a slice of the market. Be sure to develop and promote any trademarks or patents, intellectual property or other unique features of your products or services that give you an advantage over your competitors.
Create seamless policies and processes. When you Institute and document regimented policies and processes, which enable the company to function effectively without your involvement, you will make buyers feel at ease. This can certainly increase the value of your business. Potential investors need to be convinced that long after you’ve made your exit, the business will continue to thrive and run smoothly.
Retain key employees. The last thing a new owner wants is employee turnover. Skilled employees maintain business stability and generate revenue. By actively nurturing high quality personnel, you increase your company's value, especially if employees are committed to remaining with the company after you exit. Build long term incentives for key employees, such as equity ownership that vests over time or bonus plans tied to profits that motivate key employees to stay on after a business sale.
Mitigate your risks. Put yourself in the buyer’s shoes. Do whatever is possible to enhance your company’s value. Are your financial records accurate and up to date? Is your facility looking its best? Are there any loose ends that you need to tie up before you list your business? Increase the value of your business by giving buyers what they prefer a business that comes with low risks and high rewards.
Identify, highlight and tidy up tangible and intangible assets. It is essential to list and price all physical assets of your business, including furnishings, fixtures, equipment and inventory. But also consider the value of your intangible assets, items like leases, contracts and agreements, customer relationships, brand recognition, and more. Every non-material asset that contributes to your company’s profit line has the potential to boost its price.
When you put time into shoring up the different elements that make your business stand out, your sales and profits will increase, it only becomes more stable, which will help your business command a higher price. Really valuable companies have increasing revenue and profits, but they also have a strong management team, quality products and services, strong processes and procedures, and much more.
Scott’s local presence in the Sydney business sales market is backed by his outstanding record of success over the last decade in completing business sales, mergers and acquisitions and strategic business exits. Scott can analyse your business and present a variety of options to you, such as:
Executing strategies to improve business value
Create an Appraisal for your business
Identify multiple ways to increase your business’ value before you exit
Working with you to formulate an appropriate exit strategy over a set period of time
Automating business processes
Analysing data and providing advice
Options to sell a portion of your business to a targeted buyer with the aim of freeing up some of your capital
Potential earnout options that could increase the value of your business over the next 12 months
Help you determine the best time to sell your business
Any other option that is suitable to you and your business
Contact Scott today to gain the knowledge you need to maximise your business value and secure your financial future.