Increase Buyer Interest

Once you make the decision to sell your business—even if it’s 10 years down the road and you don’t know who will buy it–every strategy you develop and decision you make is towards that end, including how you structure the business, how much salary you take out, who you hire and what products and services you offer. For every decision you take, you need to think, “Will this help increase the value of my business?”

To help you get the most for your business, here are three areas where you can make your company more attractive to potential buyers.

Delegate decision-making
A business where the owner is not relied upon for the success of every aspect of the business is more valuable than one where the owner does everything. Hire a strong management team and delegate decision-making to them. Develop a culture where employees are encouraged to take prudent risks and make decisions to move the company forward. If management is empowered to make decisions that are in the best interests of your customers, the business can run successfully when you are gone.

Get audited financial statements
Audited financial statements are not only required during the due diligence phase when you are selling your business, they also help instill some financial control and prudence in your company. Sure, it may increase your accountant’s bill each year, but as one business owner told me recently, “I spent a few thousand a year to have the audited statements created, but if I had waited until someone was interested in buying my company, it would have cost me well over $100,000 to go back and create the five years of audited statements the potential buyer required. It would have also taken months.” Creating financial statements once you already have a buyer may risk the completion of the transaction. The potential buyer may not want to wait an additional four to six months while the financial statements are being created, so why not avoid this and create them now?

Find ways to increase cash flow
Most businesses are now valued based on their profitability or EBITDA (earnings before interest, tax and amortization). Calculating value based on revenues is a thing of the past. Buyers want to know how much cash flow the business will provide. It should, of course, be your goal to maximize what you take home each year and when you sell your business. Leading up to the eventual sale of your business, you should always be looking for opportunities to increase profitability and value.

You need to make your business as attractive as possible and make the process easy for a potential buyer. The more you can prepare now for that eventual sale, the smoother the process will be once the time comes. The #1 reason why business sale transactions fall through is because the seller (business owner) doesn’t plan appropriately and seek advice. Having a management team that can run the show without you, having audited financial statements you can provide up front and having implemented strategies to increase profitability, are all ways that you can increase the value of your business. Even if you plan on succeeding the business to family, you should still consider these strategies, because your family members may not be interested, or capable, of running the business effectively and maintaining its legacy.

For three low-cost ways to quickly increase the value of your business see “Upping Business Value” next issue of Capital Ideas on Sept 22.

Andrew Miller is president of ACM, a company specializing in improving organizational performance and profitability.