How To Increase The Value Of Your Small Business For Sale
Is the ultimate end game for the small business that you’ve built to sell it, this as soon as possible, or sometime in the near future.
Is your exit strategy to make it attractive enough so that you can profit handsomely from it’s proceeds.
At times, there are some entrepreneurs who believe that the sale of a business that’s successful comes down to luck, where their business happens to run into the perfect buyer at the most opportune time. What they’re thinking is jackpot.
Although identifying the ideal buyer is extremely important during the selling process, most of the experienced business owners know how to polish up their business for sale. Then it doesn’t need to rely on blind luck or random chance, as it becomes a candidate to be a profitable sale.
When you consult with experts who handle business for sale transactions, they will tell you that the most successful of these sales of businesses involves a combination of good planning, strategy, and hard work. It’s also true, however, that there’s a certain element of luck that’s involved when it comes to timing.
The businesses which happens to sell quickly once on the market, and for the highest possible price, is the result of plenty of long term effort and hard work.
The owners know how to build up the equity in their business, making it a lot more attractive for potential buyers who are looking for a “turnkey” profitable business solution with potential.
Building A Business To Make It Sell
There’s a combination of characteristics which buyers will look for when it comes to buying a small business. So from a seller’s perspective, there are a few established features which they can promote that will ultimately yield the best results, this once the business is listed on the market.
The Business Needs Revenue That’s Recurring
Consistent revenue which is recurring month after month, preferably for years, with ideally a variety of income streams is obviously the most attractive to potential buyers.
The buyer, beyond the initial investment, wants to count on an immediate monthly revenue stream from the business, along with established loyal customers. This way, it then becomes easier for them to budget their monthly income and justify their investment.
Revenue which is consistent means they may pay a higher price for the business. So it’s up to the previous business owner to establish ways of building guaranteed recurring revenue streams directly into the business model.
Profits Which Are Consistent
Recurring revenue streams on a monthly basis is important, but the buyer will place premium value on the business based on it’s bottom line profitability, how much of the revenue translates into actual profit.
Since making a profit is the ultimate goal of any business, it becomes important to establish a record of profitability, ideally for years leading up to the sale.
Consistency is also important since most new business owners are planning to live off the revenue of their new profitable business. Any initial intermittent lean years will usually cripple the owner’s lifestyle as well as budget.
You can also develop a plan to demonstrate and then project the untapped potential of the business. You can do so by discovering new markets which the business can exploit, or by securing competitive advantage that’s specific to the industry.
Branding The Business
Establishing a brand which is distinct and recognizable for your business means that it stands out from the other similar businesses in your sector, industry, or area. The customers will also be willing to pay a bit more for your product or service for the privilege.
An established brand becomes an asset which is able to add value to the company, this especially if you’re planning to sell it. The caveat however is that any “brand” just doesn’t appear or is established overnight.
It can usually take years for it to develop and be recognizable. But if your particular brand happens to dominate your target market, that will ultimately pay off when it comes to the sale of the business.
Having Tangible Assets
Some business owners, because they’re wanting to lower their overhead as much as possible, will prefer to have as few physical assets as possible that they’ll outright purchase and own.
They would prefer to just lease the equipment instead of buying it. This includes real estate as well as capital equipment.
But to build a business which has higher selling value, it becomes important to establish a portfolio which has some hard assets as inventory. These tangible assets will improve a new buyer’s ability to be able to secure financing if they need it, this since they’ll reduce their risk by providing collateral as security.
Keep Accurate Bookkeeping
Accurate and precise accounting is a vital and an important trait when it comes to highly marketable businesses. So all financial statements, asset inventories, and other pertinent records need to be precisely compiled, as well as kept up to date.
If the buyer after they do their due diligence suspects that your records don’t reflect the business accurately, that will immediately lead towards a breach of trust, which can jeopardize or halt the sales process.
So meticulous and transparent records are a necessity, as doing so can influence and even possibly drive up the valuation of the asking price.
Another feature which you can provide to help out the buyer is having a seamless transition strategy, or providing options for financing, which can help accelerate the sale of the business quicker.
Ultimately, the process of building your business where you intend to sell it really isn’t that overly complicated, all it takes is a bit of initial planning and effort.